US e-commerce giant Amazon is in a legal war with Future Group as they fear Reliance Retail's acquisition of Kishore Biyani's companies may topple their India strategy. Billionaire Mukesh Ambani wants to consolidate Biyani's business with Reliance Retail and convert their stores as brick and mortar plus warehouse to back his e-tail venture JioMart. Amazon's fear is logical as Bank of America Global Research's study shows that JioMart's e-commerce market share in India will grow to 10 per cent in 2025 from 1 per cent now.
In fact, Biyani's 1,500 odd stores is not a big deal for Reliance Retail, which has 12,000 stores across India. Reliance Retail has added 1,500 stores in the last financial year alone. Understanding Ambani's strategy, the ecommerce giants Amazon and Flipkart are scaling up their investments in the country. The American retailer Walmart owned Flipkart is the leader in the Indian market with 47 per cent market share, followed by Amazon with 34 per cent. The major point is that they are aggressively fighting to retain the market share for long term as the ecommerce market is projected to grow to $107 billion in 2025 from $42 billion in 2020.
Flipkart and Amazon have evinced interest in buying or acquiring stakes in various retail formats in recent years to consolidate their position in the market. Amazon has invested in supermarket chain More (2018) and Shoppers Stop (2017). Flipkart has recently invested in Arvind Fashion's Flying Machine brand (2020), besides the recent Rs 1,500 crore infusion in Aditya Birla Fashion Retail (ABFRL) for acquiring 7.8 per cent stake.
"Going ahead, we believe, majority of the well-established brands will align with one of the major online platforms (Flipkart, Amazon, JioMart). Also, such a tie-up could extend to other industries to build an integrated platform, potentially similar to what Reliance is doing via JioMart," said Edelweiss in its research report.
It will be interesting to note that Ambani's trump card in this retail war will be his partnerships with the US technology companies. Facebook and Google hold stakes in Ambani's digital venture Jio Platforms Ltd (JPL). They hold 9.99 per cent and 7.73 per cent, respectively. US tech majors Intel and Qualcomm are the other strategic investors in JPL. Besides, JioMart has an agreement with Facebook owned Whatsapp for building online commerce ecosystem, integrating about 3 crore kirana shops. The strong technology backbone which Ambani created under JPL is the enabler for retail and ecommerce structures.
A one-man arbitration panel heard the plea of Amazon and Future and a verdict is expected this week. Last year, Amazon had bought a 49 per cent stake in one of Future's unlisted firms, Future Coupons Ltd, with the right to buy into flagship Future Retail after a period between 3 and 10 years. Future Coupons owns 7.3 per cent stake in Future Retail.
Analysts see Amazon's move is to checkmate Reliance as Ambani has proved his potential in disrupting the sectors and toppling incumbents.