Business

Princes to the poor: India’s sellers face ruin as Ambani targets mom-and-pop stores




  • Reliance billionaire’s JioMart app aimed at ‘kirana’ stores
  • Small stores account for 4/5 of India̵[ads1]7;s $ 900 billion retail sector
  • Kirana switches to JioMart beats traditional sellers, channels
  • “Look how much you’ve ripped us off!” store owner
  • Distributors challenge Ambani, blocking JioMart deliveries

SANGLI, India, November 22 (Reuters) – For eight days in a row, the seller of household goods Vipresh Shah has not been able to sell a single pack of Dettol soap to the shop owners who have bought from him since he took over the family business as a teenager, for 14 years since.

Shah is an official distributor of British Reckitt Benckiser in Vita, near Sangli town, about 200 miles south of Mumbai. But he said that former loyal customers are now pointing to an app – JioMart Partner – on their smartphones that shows prices up to 15% lower, instead of placing orders.

“As Reckitt’s distributor, I used to be like a prince in the market,” said Shah. “Now the buyer says to me, ‘Look how much you’ve ripped us off!'”

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The 31-year-old said he lost $ 2,000 of his own money when he discounted products to match the prices of JioMart, the app launched by Reliance Industries billionaire Mukesh Ambani in his effort to revolutionize retail distribution in India.

Up and down India in places like the small town of Vita, the mother-and-pop stores that account for four-fifths of a nearly $ 900 billion retail market – more than $ 700 billion – are increasingly turning to JioMart to fill up foreign and domestic brands.

Just as Ambani, India’s richest man, has disrupted the country’s telecom industry, the tycoon is set to shake up retail distribution, take on US e-commerce giants such as Amazon (AMZN.O) and Walmart Inc (WMT.N), and expand rapidly. in India.

The country has around 450,000 traditional distributors, who have legions of vendors to serve every corner of the vast nation, including 600,000 villages. They usually earn a margin of 3-5% on product prices and usually take orders physically once a week, and deliver to retailers within a few days.

But Reliance’s model throws a wrench into the supply chain: the mom-and-pop stores, known as ‘kiranas’, can order items at JioMart Partner with deliveries promised within 24 hours. Reliance also offers on-the-job training, credit facilities and free product samples for affiliated kiranas’ customers.

This means that hundreds of thousands of salespeople representing consumer giants such as Reckitt, Unilever (ULVR.L) and Colgate-Palmolive (CL.N), face an existential threat to their business, according to interviews with salespeople, 20 distributors and a trading group of members above all over India.

Many of the distributors contacted by Reuters said they had cut the workforce or fleet, and seen their door-to-door sales drop 20-25% in the past year as store owners partnered with Reliance.

In Vita, salesman Shah said he had to lay off half of his four employees. He fears that the 50-year-old family business may not last longer than the next six months.

‘GRILL TACTICS’

The scale and speed of the outage have triggered tensions between traditional distributors and Reliance, which in some cases have boiled over to physical confrontation.

In the Maharashtra state in the west – the home of Vita – and Tamil Nadu in the south, traditional sellers have organized blockades of some JioMart delivery vehicles.

“We will use guerrilla tactics,” said Dhairyashil Patil, president of the All India Consumer Products Distributors Federation, which represents 400,000 agents for local and foreign consumer companies. “We will continue to agitate,” he told Reuters, “we want (consumer goods) companies to realize our value.”

Reliance remains relentless in pushing further with Ambani’s “new trade” retail venture, first announced in 2018.

Last year, it raised funds from marquee investors, including Silver Lake Partners and KKR & Co Inc (KKR.N), as it seeks to integrate mom-and-pop stores into what it has identified as a more inclusive approach to digital. trade. This pressure is in stark contrast to those like Amazon, which for years has faced – and denied – claims in India to favor select bestsellers at the expense of smaller retailers.

A source close to Reliance said the company was determined to continue expanding its mom-and-pop stores business. It believes the model could co-exist with the traditional approach in one of the world’s largest retail markets, the person said, refusing to be identified due to a lack of authority to disclose the company’s plans.

Ambani said in 2018 that he finally wanted to connect 30 million small merchants to the Reliance network. So far, it has 300,000 trading partners in 150 cities ordering consumer goods from Reliance, but the transformation will be magnified many times over if it reaches the goal of adding 10 million partner stores by 2024.

Reliance did not respond to requests for comment on this article.

Colgate declined to comment, while Reckitt said customers and distributors were an integral part of the business, but it did not comment on the relationship with them. Unilever’s India arm, Hindustan Unilever, (HLL.NS) did not respond to a request for comment.

WHICH CHANNEL?

The traditional distribution methods are still important for the producers of consumer goods, even in the midst of the disruption, say industry monitors.

Himanshu Bajaj, former Asia consumer and retail manager at consulting firm Kearney, said CEOs of consumer companies he met in September raised concerns about Reliance’s strategy, which is disrupting the traditional distribution chain.

“Companies do not want to kill their own distributors. The concern is real,” he said.

Asked about Reliance’s model and concerns among distributors, Sunil D’Souza, CEO of India’s Tata Consumer Products (TACN.NS), told Reuters in an interview last month that it “can not afford to sit back and ignore” some major distribution channel, but Tata tried to minimize conflicts and find a balance.

Jefferies estimated in March that kiranas will “steadily increase its share of procurement” from Reliance “at the expense of traditional distributors”. Such sales for Reliance could mushroom to $ 10.4 billion by 2025 from just $ 200 million in 2021-22, Jefferies estimates.

A leader working for a rival to Reliance said that Ambani “spread its wings very fast” in serving kiranas and already has a head start in negotiating prices, due to long-standing relationships with consumer goods manufacturers who for years have counted Reliance and its 1100 supermarkets as a major customer.

With kirana partners, Ambani adds another, big vertical. “Brands can not afford to put Reliance on the sidelines, it’s just their sheer purchasing power,” said the leader, who refused to be identified because he was not authorized to speak to the media.

ALL ABOUT PRICES

Many kiranas are cramped shops in aging buildings, where brands are placed on wooden shelves and small bags dangle from the ceiling. Such retailers embrace Reliance as a means of increasing profit margins.

When Reuters accompanied Anuruddh Mishra, a sales agent for Colgate, during an excursion in the Mumbai Dharavi area, he struggled to convince Shivkumar Singh, the 50-year-old owner of a dilapidated store, to make a purchase. Dharavi is home to 1 million people and is ranked as one of the world’s largest slums.

Singh opened its JioMart app and showed the far lower prices offered. “How can I order from traditional distributors?” he said. “The difference in price is huge. Now I order most from Reliance.”

A Reuters review of purchase agreements on the JioMart Partner app showed that the Dharavi retailer could buy a two-tube combination of Colgate MaxFresh toothpaste for around 115 rupees ($ 1.55). Seller Mishra’s distribution company gets it for 145 rupees, and his latest offer to the Dharavi dealer was 154 rupees – still more than a third higher than the Reliance price.

Back in Sangli, traditional distributors said they had at times chased down Reliance vehicles and confronted drivers with allegations of unauthorized deliveries.

Sunil Pujari, who works in the city for a JioMart delivery agent, said he had been warned by his superiors to immediately notify them if angry distributors stopped vehicles.

But the business is still lively.

“The prices offered by JioMart can not be matched by anyone,” he said, delivering another delivery in a crowded market.

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Reporting by Abhirup Roy in Sangli and Aditya Kalra in New Delhi; Edited by Kenneth Maxwell

Our standards: Thomson Reuters Trust Principles.



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