Ambani wages price war with Amazon for US$200 billion India prize

Morgan Stanley estimates that India will generate US$200 billion in e-commerce sales by 2026. PHOTO: AFP

MUMBAI (BLOOMBERG) - Billionaire Mukesh Ambani obliterated rivals in India's telecommunications sector by selling US$2 data plans and free voice calls. Four years later, he's deploying a very similar tactic - cutthroat pricing - to gain an edge in the country's increasingly competitive e-commerce space.

As India this week hits the peak of its biggest shopping season, the festival of Diwali, the tycoon's retail websites - including JioMart - are elbowing their way into a space long dominated by Amazon.com and Walmart's local unit Flipkart Online Services.

Ratcheting up competition, Mr Ambani's portals are offering blockbuster discounts of as much as 50 per cent on popular sugary confections and other holiday staples like spice mixes for India's rice delicacy, biryani. Meanwhile, his Reliance Digital website is selling some flagship Samsung smartphones at prices cheaper than rivals, with as much as 40 per cent rebates.

It's a push that comes as Mr Ambani's sprawling conglomerate, Reliance Industries, is flush with cash. After raising an eye-popping US$20 billion (S$27 billion) for its technology venture, it's shifted fundraising to its retail arm, which has won over US$6 billion in investment in recent weeks from heavyweights like KKR & Co. and Silver Lake. Already India's biggest brick-and-mortar retailer, Mr Ambani's online ambitions pit him against the two US giants, both of which have invested big in India.

The country, one of the last big consumer markets, is still up for grabs, and Morgan Stanley estimates that India will generate US$200 billion in e-commerce sales by 2026. Yet, the billionaire's triumphs in telecommunications - where he started as a tiny player, but outpaced established rivals by undercutting them on price and capitalizing on regulatory changes - are a cautionary tale for the American giants.

HUGE EDGE

In retail, Mr Ambani's firm has a huge edge: Government policies are increasingly stacked in favor of domestic retailers, of which Reliance is the largest. Since the end of 2018, India's foreign investment rules have also barred Amazon and Walmart's local unit Flipkart from featuring exclusive products and owning inventory, in a bid to restrict their ability to directly influence prices and offer discounts. International companies aren't allowed to own more than 51 per cent of local brick and mortar supermarket chains. Even that limit is subject to conditions such as setting up only in cities with populations of less than one million.

With his local strategy, low-cost procurement and chain of brick-and-mortar stores, Mr Ambani has the ability to shake up online retail, said Siju Narayan, Chief Experience Officer, RexEmptor Consult LLP in Mumbai. "JioMart can dent the fortunes of grocery e-commerce majors like Bigbasket & Grofers," he said, referring to the country's biggest online grocers. "And impact the grocery, home & personal care category of e-tail majors like Amazon and Flipkart in coming days."

Representatives for Reliance and Bigbasket declined to comment, while those for Walmart, Amazon and Grofers didn't respond to requests for comment.

HIGH STAKES

In India, the stakes are high for the American retailers. Jeff Bezos, Amazon's hard-charging founder and chief executive officer, has pledged to invest US$6.5 billion there. Walmart spent US$16 billion in 2018 to acquire Indian portal Flipkart in its biggest ever deal, and has invested over US$1 billion this year in the e-tailer and steadily plowed cash into its sister unit, payments service PhonePe. But for Mr Ambani, 63, Asia's richest man with a net worth of US$78 billion, the e-commerce push may turn out to be tougher than telecom. First, he will be up against formidable rivals. The wireless operators he defeated were mostly homegrown players, lacking the heft, experience and deep pockets of Amazon or Walmart. Also his group's e-commerce websites are newer compared to its rivals'.

Reliance group's JioMart - which only started this year and is still in the beta phase - has had delivery snafus and refund delays, and some users haven't been shy about venting on Twitter. All that means winning big against Walmart and Amazon could take years.

FUTURE BUSINESS

Yet, getting it right is key because Mr Ambani has cast retail and technology as the future of Reliance, which got its start in textiles under his father and then progressed into petrochemicals and oil refining. Two of his oldest children, Ivy-league educated twins Isha and Akash, are on the board of Reliance Retail Ventures.

Reliance is already India's biggest company and its market capitalization of US$185 billion equals about 6.6 per cent of India GDP. Its heft would only increase if it wins a greater foothold in e-commerce - something that's increasingly becoming important in India, which has suffered a lockdown for much of the year due to the pandemic and where organized retail is yet to penetrate rural corners.

The pandemic is offering a boost to Reliance because many local stores can't offer aggressive discounts due to financial difficulties, said Laiji Varghese, who runs a provision store in Nerul, a town in the outskirts of Mumbai, and has a partnership with Reliance to deliver orders."Reliance Retail is a big bulk player with deep pockets," she said. "They have the financial muscle to offer such discounts compared to others."

INDIA'S ALIBABA

"Narendra Modi has clearly decided that he wants to produce an Indian equivalent of Alibaba or Tencent, and he knows Reliance is the only plausible candidate," said James Crabtree, an associate professor of practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore, author of The Billionaire Raj, which chronicles India's economic opening and has Mr Ambani's much-storied Mumbai home on its cover.

To cement his position as the nation's No. 1 retailer, Mr Ambani bought the retail, wholesale, logistics and warehousing units of Future Group for US$3.4 billion in August. Amazon, which owns a tiny stake in one of the unlisted firms under the Future Group, has sought to block the sale in an arbitration court. Reliance, meanwhile, said it intends to complete the transaction without any delay.

"It's a head-on competition in online retail," said Devangshu Dutta, CEO of retail consultancy Third Eyesight. "An extremely well capitalized, very aggressive player is the new challenger."

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