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Jio moment in FMCG! Reliance's turf war with HUL, ITC is set to begin

Jio moment in FMCG! Reliance's turf war with HUL, ITC is set to begin

The Mukesh Ambani-led group's foray into the FMCG market is expected to soon initiate a fierce battle with industry leaders like HUL, ITC, Nestle & Coca-Cola for capturing shelf space...

In the modern retail space, Reliance is already the largest player by far with over 15,000 outlets under its various brands. In the modern retail space, Reliance is already the largest player by far with over 15,000 outlets under its various brands.

After disrupting the telecom market in 2016, Mukesh Ambani’s Reliance Industries (RIL) is gearing up for another war. Last time, Reliance’s aggressive foray into the country telecom services space had resulted in weeding out of multiple players. This time, it is the fast moving consumer goods (FMCG) market that is under siege.

Taking cue from its previous attempt, Ambani’s Reliance is planning to go all out. Not only it is going to leverage its existing private label brands but the wide network of general trade outlets - the local kiranas - spread across the length and breadth of the country.

The fight for shelf space

Take a peak at its expansion plans in the physical retail space, for instance, and you will get an idea about the scale of Reliance’s ambitions in the FMCG space. As per estimates by Edelweiss Securities that tracks the company closely, RIL is expected to bring 10 million merchants on board over the next five years. In comparison, Hindustan Unilever - the country’s largest full range FMCG player - has 9 million retail partners that sell its products.  Salt-to-cigarettes conglomerate ITC’s products are sold via less than, an estimated, 7 million outlets. Country’s largest pure play food & beverages company Nestle India has some 4.5 million retailers under its fold. And unlike RIL, their retail foot print was built over several decades.

According to Mukesh Ambani, while Reliance is already a leading player in the modern retail and digital platforms, the company has set a target of increasing its reach in the hinterlands that remain under-served.

Analysts say, RIL’s formal foray into the FMCG space may have come last week but the company has already begun on-boarding super-stockists and distributors. Put it simply, it has already started building the backbone of the general trade channel that continues to contribute over 85 per cent of the FMCG revenue in the country. “We surmise it could offer higher margins to trade, deploy analytics, and leverage Jiomart’s reach, which would make it easier for it to launch and gauge demand for certain segments,” analysts at Edelweiss noted.

In the modern retail space, Reliance is already the largest player by far with over 15,000 outlets under its various brands. In the rapidly growing e-commerce segment, according to Isha Ambani, Chairman of Reliance Retail (RRL), in FY22 the company has catered to nearly 200 million retail customers - 230 per cent higher than FY2021. Its digital commerce platforms (like JioMart and Milk Basket) served 600,000 orders on an average every day. According to her, RRL’s merchant partner initiative - launched two years ago - now has over 2 million merchants on board.

“We add about 150,000 partners a month and are on coarse to 1 crore merchants as we expand our presence to cover the entire country, serving over 7,500 towns and over 500,000 villages in the next five years,” she said during RIL AGM last week. To back it up further, RRL has tied-up with Meta (formerly Facebook) to allow consumers to order through WhatsApp.

According to analysts at Prabhudas Lilladher, RIL’s plan is to create a platform to connect millions of small merchants with customers. This omni-channel approach, involves serving consumers at the doorstep from the nearest kirana outlets by integrating the ordering, stock availability and delivery of daily essentials in a cost-effective manner.

Industry experts say, Reliance has chosen the right battle to begin with. Capturing retail shelf space - which essentially means better availability and placing the products on grocery stores prominently - is a key ingredient for success in the FMCG business.

Value for money is the key

Another crucial factor that decides the fate of FMCG companies in the India market, is the ‘value for money’ proposition. In a price conscious market like India, where per capita consumption of FMCG products continues to trail even that of the developing markets like Indonesia and Vietnam, offering affordable products to the mass has proved to be most significant factor over the years. This, in spite of the fact that India is the fourth largest FMCG market in world with annul sales crossing Rs 5 trillion (lakh crore).

Reliance’s foray in the FMCG market essentially means, “a wider distribution to general and modern trade. Initial focus of the company would be on small packs grocery segments. Wider diversification to follow gradually”, said analysts from ICIC Securities.

The Mumbai-headquartered company has been piloting for the past two years with some in-house brands. Its private label Snactac caters to categories like snacks, biscuits and instant noodles; Desi Kitchen in instant mixed, flours, pickles and blended masalas; and Goodlife in pulses, rice and edible oil. These brands were primarily pushed through its own retail platforms like JioMart and Reliance Fresh.

But with its formal foray into the market now, Reliance has upped the ante. To venture into the country’s Rs 50,000 crore aerated drinks market, it has acquired Campa Cola - a home grown fizzy drinks brand  that was popular in 80s. This places Reliance Retail in direct competition with the two American cola giants - PepsiCo and Coca-Cola - that have been rolling the local market since 1990s.

“Our strategy is to integrate with millions of small merchants…the aim is to bring them to become an integral part of the widest distribution portfolio across the country so that they can provide the same choices to their customer that are available in big cities,” Ambani said during the annual general meeting of Reliance Industries.

Additionally, according to him, RRL is also working on to strengthen its supply chain capabilities further so that it can serve across the vast Indian geography in the “most efficient manner”. This will not only help it reduce waste but will also allow the company to pass on the benefits to its customers - which effectively means, RRL will be able to offers products at competitive prices. This has set off the alarm bell.

“RIL’s FMCG foray cannot and should not be ignored by incumbents. Multiple (companies) could feel the heat once RIL makes an acquisition or advertises aggressively. RIL is likely looking at buying out brands such as Garden Namkeens (Cavin Kare), Lahori Zeera (beverages) and Bindu Beverages (fizzy drinks and fruit juices)," Edelweiss said.

According to its analyses, Adani Wilmar, VarunBeverages and Tata Consumer’s Sampann portfolio are at risk now. “Being much more diversified, HUL and Marico face some risks too. We expect risk to be lower for companies such as Nestle, Dabur and Colgate,” they said.

It seems like a deja vu - the Jio moment in FMCG.