One rainy day in January, Future Group’s Kishore Biyani spent nearly an hour with Amazon chief Jeff Bezos at his Seattle headquarters, surprisingly, not discussing retail. Instead, the founder of India’s largest retail firm spoke of how Alexander’s invasion of India had met with fierce resistance, leading the all-conquering Macedonian march to retreat, albeit temporarily.
Biyani, who owns the Big Bazaar supermarket chain, was trying to draw a parallel — how Amazon could use an ally that controls nearly a third of the country’s organised food and grocery market.
About the same time, but nearly 2,000 miles away at Bentonville, its arch rival Walmart wasn’t sitting pretty either. The world’s biggest retailer was planning its India counter-offensive despite being singed in its initial effort.
Discussions with Flipkart had been on since 2016, much before Japan’s SoftBank and Microsoft wrote fat cheques for the $12-billion startup, also the largest etailer. However, two years and several Bengaluru trips down the line, picking up a larger, or possibly largest, chunk of Flipkart was becoming a strategic necessity.
In retail, first consumers went to the product. Now, in the golden age of ecommerce, it’s the product that comes to consumers — anywhere, anytime. Technology has made it seamless.
After China and the US, India’s 1.3-billion consumer base is becoming the next battleground for everyone from Alibaba to Amazon as they take on local competition from the likes of Biyani or Mukesh Ambani’s Reliance Retail.
As yet, a larger proportion of sales are still offline and local companies rule the trade in both brick-and-mortar as well as online space. But most feel it’s a matter of time before the inevitable happens.
“Nearly 10-15% customers are acquired online-to-offline (O2O) by Future Group. We expect it to go up to 35%, especially through online promotions,” says Biyani, adding that understanding India is not easy for a retailer. “A global retailer needs to adapt to the local style of retailing.”
For one who has flirted with Carrefour and Walmart, and recently been invited by both Jack Ma and Bezos to their headquarters, Biyani, however, declined to comment about any possible alliances.
CLEAR & PRESENT OPPORTUNITY
But Biyani knows he needs to act fast.
Amazon has fired the first salvo. Last year, its investment arm bought 5% stake in Shoppers StopBSE 2.46 %, the country’s largest department chain operator. The retailer also entered into a commercial arrangement with Amazon India to sell its products on the latter’s marketplace and open experience centres for Amazon at its stores.
“The biggest advantage of tying up with Amazon is their reach, with more than 400 million consumers go online every month for it,” says Govind Shrikhande, managing director, Shoppers Stop. “Our online reach is just about 6 million. Exposing our catalogue to their customers will drive penetration for us even in smaller cities, bring in those who don’t know Shoppers Stop and make it convenient for customers to compare us with other players.”
Globally, such alliances have already been transformational. Alibaba and JD.com have been shopping for retailers in line with their comprehensive clickand-mortar strategy, scooping up stakes in retailers such as Suning Commerce Group Co, Lianhua Supermarket Holdings Co and Intime Retail Group Co.
Amazon acquired grocery chain Whole Foods for almost $14 billion last year and has been aggressively moving into categories such as apparel. In 2017, it launched checkout-free Amazon Go store in Seattle.
Rival Walmart has been on a similar shopping spree, acquiring 100% of Chinese ecommerce business Yihaodian in 2015, upping the 51% it picked up in 2012. Then came Jet.com in a $3.3-billion buyout, followed by a strategic alliance with JD.com in 2016. Last year, it kept going — adding Moosejaw, ModCloth, Bonobos and Parcel for online-offline consolidation.
Already, Amazon and Walmart are fighting a patent war over drones in a classic American faceoff. But why is it key for online retailers to have feet on the street and vice versa?
Ma calls it New Retail and Biyani, Retail 3.0. It’s an omnichannel shopping experiment where lines get blurred for an interactive and experiential bonanza. Instead of competing, it’s about collaboration.
“Everyone in India knows the hybrid model will work. Burning loads of cash for market share just won’t work for online retailers. That’s at the core of Walmart-Flipkart discussions,” says an official privy to ongoing discussions. “That GMV (gross merchandise volume) party is over and you will have just three online players left — Flipkart, Amazon and Paytm Mall. Soon, you will see them pump in more investments in the ecosystem for supply chain, warehousing and logistics.”
Bob van Dijk, Group CEO of Naspers that owns a strategic stake in Flipkart cannot agree more. “The blending of online and offline retail is a real trend. From our experiences in other markets, it can be very complimentary – local showrooms, pick up points. You really can’t tell if it’s an online or an off line business any more,” he says.
What has changed in the past five years is the admission that online and offline will coexist, feels Abheek Singhi, senior partner and director, Boston Consulting Group.
“Empirically, retail is a very local market. Winners in the US are different from those in the UK, which are di f ferent in France and Germany. It is going to be something similar to FMCG, where you have a few strong MNCs and a few domestic players. In retail, there will also be strong players on both sides of the fence,” he says.
In India, the digitally-savvy check out products online before shopping at stores. But retailers have seen that when a customer shops via just one channel, online or offline, they shop at 1x. But when they go for both forms, shopping increases three to five times.
“So convergence is very important as lot of customers still want to touch and feel the product. Customers are no more thinking of channels, but are doing seamless shopping,” adds Shrikhande.
In India, a majority of the big players are still driving price and not convenience or assortment depth. For instance, Alibaba’s Tmall is all about convenience and not discounting whereas Tao Bao is about pricing. India needs that kind of different play.
According to a report by EY and Ace Turtle, web-impacted sales of products in India at present are around 34% — much higher than developed markets such as Europe (10%) and the US (6%). More and more Indians browse the net first before purchasing branded products.
“Even in the US, the most mature online market, it is only 9-10% of the overall market. So coexistence will be there and threats were overblown,” says Aashish Chandorkar, head, Capgemini Consulting India. “The battle is not to rule the current share but expand market, given that organised retail is just 6-7%. Certainly, Amazon and Walmart should be the leading move in the next few years.”
Some say the number of Indian online shoppers has plateaued. “There are only 40 million Indians who have bought online and almost 60% of them have not ordered for the second time,” says Darshan Mehta, CEO, Reliance Brands. “They have hit a wall and the pie to not growing.”
STORES STILL MATTER
India’s online retailing business is estimated to grow by more than 1,200% to $200 billion (`13,30,550 crore) by 2026, up from $15 billion in 2016, according to a Morgan Stanley report last year. It estimates online retail to account for 12% of the country’s retail market by then, up from just 2%. On the other hand, India’s physical retail market is estimated to top $1.1 trillion by 2020, from $680 billion at present, with organised retail expected to grow at 20% per annum, according to a study by MRRSIndia.com and Assocham.
That’s another reason why Amazon, Walmart or even Alibaba would want to be strong in all formats. Amazon and Walmart dominate their home turfs in their core channel but Alibaba is equally dominant in China and Southeast Asia, where it spent more than $2 billion to take control of Lazada, a five-year-old online shopping company based in Singapore with presence in six countries.
All of them are increasingly developing international businesses, with India in the middle, where Amazon has pledged to spend $5 billion and Alibaba has invested about $500 million for stakes in Paytm — India’s largest mobile payments platform — and its ecommerce affiliate, Paytm Mall. It also recently invested about $300 million in online grocer BigBasket.
Indian retailers are still beefing up their stores network. In the past six years, Biyani has acquired half a dozen supermarket store chains to put together a total retail space of 13.6 million sq ft, with presence in 255 cities through 930 stores. No other retailer can match Future Group’s national presence, apart from Reliance Retail. In addition, it also has data of 500 million consumers who have shopped in its stores in a country where more than 98% of retail sales take place offline.
“Omni-channel strategy is no longer where you say it is only in my mini-world where I will have my own store and my own website. It is wherever your consumer is engaging with your brand,” says Nitin Chhabra, CEO, Ace Turtle, which handles end-to-end ecommerce operations of fashion and lifestyle brands such as Puma, Ray-Ban, Fossil, Ed Hardy and US Polo, among others.
Offline players such as Tata, Reliance Fresh and Godrej Nature’s Basket have all launched omnichannel initiatives, although limited in scale. Future is adding a technology layer wherein new outlets will be opened with help from Google, which will identify store locations by mapping consumer density.
Biyani has also tied up with Facebook and chatbots, machine learning and voice recognition startups to drive social engagement with consumers. Brickand-mortar store will allow orders on Facebook Messenger, WhatsApp or through its voice app, while analytics will plot consumer behaviour and buying patterns, to better manage inventory. After already testing them in 350 Easyday stores with 500,000 members in Punjab and NCR, Biyani is confident cost of operations would be lower by 7-10%.
The Tata group too bought out the management team and technology infrastructure of Gurgaon-based GrocerMax last year, to enter online grocery business as consumers increasingly place orders for weekly supplies over the internet. The salt-to steel conglomerate also has a disparate presence in retail through Trent and Infiniti Retail, which operates the Croma chain of multi-brand electronics stores. In addition, the group owns Titan watch brand and jewellery retailer Tanishq.
“There was a thinking among brickand-mortar as well as online retailers that never the twain shall meet ,” says Kanwar Rameshwar Singh Jamwal, executive director, Tata Industries. “But for customers, this isn’t the case. They want price, convenience, access and range of products. In conventional retail, occupancy is the biggest cost, while for ecommerce, it is the fulfilment cost.”
Nearly two years ago, the company launched Tata CLiQ, betting on a ‘phygital’ model, or a combination of online buying and store purchases, to ram its way out of the clutter. More than a third of the orders are delivered through phygital and shipped out of store, while 4-8% of orders are collected by customers.
As a retailer, Jamwal argues, “We are not trying to second guess consumer taste since brands have been doing that already. Instead, we have been very strong in fulfillment and range. Omnichannel has a lot of leg and is a way forward not just in retail but in life as well. Depending on categories, more than 30-50% of purchase occasion can happen online.”
The consumer, after all, is always king.