A battle is brewing between two of the world’s richest men – America’s Jeff Bezos and India’s Mukesh Ambani. At stake is enlarging their control and getting a firm grip over a one billion-plus consumer market that’s forecast by Boston Consulting Group to almost double to US$1.3 trillion by 2025.
Pitted against Amazon Inc, the world’s largest e-commerce company and a leader in artificial intelligence, cloud computing and digital streaming, is India’s Reliance Industries Ltd, which is rocketing into the telecom, retail and digital sectors to tap into the aspirations of a billion-plus youth in India and overseas, diversifying away from its original petrochemicals business.
At the heart of the battle is the Future Group owned by Kishore Biyani, the pioneer of India’s modern retail industry, which sold Amazon a stake in one of its units in August 2019 and reportedly gave a call option to Amazon to increase its stake in the flagship retail company after the third year.
The two also signed mutually beneficial long-term business agreements in January this year.
In an unexpected move in August, Future group decided to sell its assets to Reliance’s retail arm, a deal that was contested and won by Amazon in Singapore. Future then went to the Delhi High Court to contest the decision, and the judgment is keenly awaited.
The judgment could set the course for one of the billionaires to expand his dominance over India’s rapidly growing retail market. More critically, the judgment could also set at rest questions about India’s acceptance of a verdict by a globally respected and independent emergency arbitrator, and also affect the confidence of global businessmen in India.
The lawsuit is being seen as a test case of sorts. The judge has the onerous task of deciding whether a verdict by the Singapore-based International Arbitration Centre is applicable in India. The judgment day in Delhi is yet to be announced.
Future Group sold Amazon 49% in Future Coupons in August 2019, along with a call option. The option would have allowed Amazon to acquire a large stake of the promoter’s shareholding in Future Retail if permitted by law.
On January 6, 2020, Future Retail also entered into a long-term agreement to help expand the reach of its stores through the Amazon India online marketplace. “The arrangement will now build on the robust offline and online capabilities of both organizations creating significant value for customers,” said a January 6, 2020, statement.
Then came the hitch.
Future Group, much to Amazon’s surprise, sold its assets to Reliance Industries in August 2020 for 247 billion rupees, which also took its debt obligations. The sale included Future’s brands Big Bazaar, Foodhall, FBB, Nilgiris, Easyday, Central and Brand Factory and gives Reliance access to 1,700 stores in good locations across India.
Surging debt mainly because of the Covid-19 lockdown prompted Future to sell to Reliance, argues founder Biyani.
Yet even as court cases and lawsuits are still being debated and contested in courts, the Competition Commission of India approved the acquisition of Future Retail’s assets by Reliance, giving a hint of the direction the wind from Delhi could be blowing.
But is acquiring Future Retail really so critical?
Gaining access to Future Retail could tilt the advantage in the winner’s favor, but may not mean a decisive tilting of scales. According to Future, its retail chains are present in 400 cities across India and attract 500 million footfalls a year.
Its Big Bazaar stores sell everything from vegetables to groceries to clothing to cutlery and the firm is a household name with wide acceptance.
The stores could be a good fit for 777 Reliance Trends stores and 52 cash and carry stores and help them become revenue multipliers, besides its large reach to retail distributors.
In the year ended March 31, 2020, Reliance Retail Ventures, which is also the holding company for all group retail companies, earned revenue of 1.63 trillion rupees and 54.5 billion rupees in profit.
A large number of Future’s stores are also in second- and third-tier towns where physical visits and purchases may exceed online purchases. The pandemic and the countrywide lockdown has also pushed a large number of city dwellers into making their purchases online.
A Neilson India survey showed the number of items purchased on e-commerce platforms rose 23% and the average spend per customer rose 17% during the Covid-19 lockdown in March.
The Seattle-headquartered Amazon is not an unknown commodity to the average Indian.
For instance, Amazon India’s Great Indian Festival Sale that started in October received purchase orders from more than 95% of all postal code zones across the country, a reflection of the online trading platform’s wide reach, popularity, buyer comfort and acceptability.
Amazon said it reported a 96% rise in orders over 2019. Tier-2 and 3 towns reported five times the jump in sales over the last year and accounted for half its total number of orders.
Bagging Future would help the winner become a market leader in a country where 65% of the 1.38 billion people are below 35 years of age, and 50% under 25 years, making it a mouth-watering proposition.
Typically, age groups between 18 and 36 tend to be high spenders and low on parsimony.
India’s largely fragmented retail market is expected to grow annually at 9-11%, and there’s room for the top five retailers to grow their market share.
The retail market is estimated to reach $1.1 trillion to $1.3 trillion by 2025, compared with $700 billion in 2019, according to a study by Boston Consulting Group released in February 2020.
To increase investment in building infrastructure and expand rapidly, Reliance Retail Ventures raised 472 billion rupees ($6.4 billion) selling a cumulative 10.09% stake to private equity investors including Silver Lake Partners, Mubadala, General Atlantic, KKR, Saudi Arabia-based sovereign wealth fund Public Investment Fund, ADIA, TPG and GIC.
Interestingly, Reliance Retail offered Amazon a 9.9% stake, according to a ET Now television report in July. An alliance would have given Amazon preferred access to JioMart, an online groceries delivery service.
Neither company confirmed the report, but it came only weeks before Future decided to sign off its assets to Reliance.
Consumers, investors and market analysts keenly await the next round.