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Reliance's e-commerce success banks on WhatsApp partnership

Indian conglomerate Reliance Industries Ltd. on May 24 launched its much-anticipated e-commerce platform on the back of a strategic investment from Facebook Inc., sparking talks of largescale disruption in the country's flourishing e-commerce industry and eliciting comparisons with Tencent Holdings Ltd.'s WeChat. However, achieving such lofty ambitions will not be straightforward.

JioMart, which is operated by Reliance's Jio Platforms, aims to take on e-commerce leaders such as Inc. and Walmart Inc.-owned Flipkart India Private Ltd., armed with the conglomerate's formidable offline retail business and a deal to leverage Facebook's WhatsApp messenger to bring 30 million local mom-and-pop stores online. JioMart seeks to consolidate Reliance's online and offline retail offerings, starting with food retail and later expanding to categories like fashion and electronics.

The partnership is also crucial for Facebook, which is focusing on WhatsApp and its payment service to fuel its ambition to build a mobile commerce superapp with investments in Jio Platforms and Indonesia's ride-hailing service PT Go-Jek Indonesia.

Even though e-commerce accounted for nearly 4% of India's total retail sales in 2019, it has been growing at a rapid pace. Before the COVID-19 pandemic hit, online retail sales in India were expected to quadruple to $32.33 billion in 2020 from $8.22 billion in 2014, as per data from 451 Research.

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The two-month lockdown sparked a surge in demand for online grocers Grofers India Pvt. Ltd. and Alibaba Group Holding Ltd.-backed BigBasket, and with strict stay-at-home orders reducing footfalls at its supermarket chain, Reliance's e-commerce move was both necessary and opportune.

However, some analysts believe that JioMart faces an uphill battle for market share as Amazon and Flipkart, who dominate online sales for non-essential consumer goods, are also looking to ramp up their grocery offerings.

"It's not going to be a walk in the park for JioMart," said Satish Meena, senior forecast analyst at market research company Forrester. "Other companies also have capital and customers already, such as Amazon, Flipkart and Grofers. It's not going to be that easy."

WhatsApp superapp

As a result, the success of Reliance's e-commerce push largely hinges on how it taps WhatsApp's 400-million users in the country to bring online millions of local mom-and-pop retailers, or kirana stores. Reliance hopes to eventually create a multi-purpose social media and commerce superapp.

Mobile commerce, or m-commerce, has grown rapidly in India in recent years. Some 88.3% of consumers with smartphones made payments on their devices, compared to a global average of 71%, according to a PayPal survey of 2,000 urban consumers and 500 businesses. The report added that 62% of Indian businesses accept payment on social media, one of the highest proportions of all countries surveyed.

M-commerce sales grew 78% year over year in 2019 to $8 billion, or nearly a third of all e-commerce sales, from just $160 million in 2013, according to 451 Research. However, with retail sales of $781 billion taking place offline, e-commerce and payment companies are rushing to digitize millions of mom and pop stores that traditionally deal in cash, according to S&P Global Market Intelligence's 2020 India Mobile Payments Market Report.

Payments play a central role in building an m-commerce super app and services have proliferated in India through the likes of Amazon Pay, Walmart's PhonePe, Google Pay, Paytm and Reliance's Jio Pay, to name a few.

WhatsApp Pay, which is yet to receive all necessary clearances to become fully operational in India, will be key to keeping users within the messenger's ecosystem, like in the case of WeChat Pay.

Leveraging WhatsApp allows businesses to engage through a medium familiar to customers and the addition of WhatsApp Pay will make the user experience seamless.

"The whole process of integrating WhatsApp is to make the payment system less complicated. JioPay is a separate application and requires installation," Meena said.

JioMart has started trialing its WhatsApp m-commerce service in a few Indian cities. While it offers various payment options, including Jio Pay, the service does not feature WhatsApp Pay yet.

Hyperlocal challenge

Independently run kirana stores, which represent 80% of the country's grocery retail sector, are an essential part of India's social fabric, but their poor inventory quantity and management has led to a rise in organized retail and modern trade in recent years.

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However, during the COVID-19 lockdown, kirana shops became a lifeline for consumers as supermarkets shut and online grocers failed to meet the surge in demand.

Now, several e-commerce companies are looking to capitalize on the reach of these stores, hoping to turn them into hyperlocal fulfillment centers, and JioMart is the latest to join the race.

"The kirana stores will end up becoming hyperlocal delivery warehouses. JioMart will have the inventory ready and know what consumers need through WhatsApp based on their geolocation," said Jayanth Kolla, founder and partner at research consultancy Convergence Catalyst.

JioMart's offer to help kirana store owners digitize their inventory will require them to concede some control of inventory management to the platform.

So far, e-commerce platforms have largely failed to meaningfully gain access to their inventories due to a prevalent distrust toward them among kirana store owners, a reason why Amazon was forced to fold its Prime Now service earlier this year.

It is also likely that JioMart will route unfulfilled orders from kirana stores back to its supply chain and control the distribution of stock to the stores in the future due to its close relationship with suppliers, said Meena.

While testing the service in Mumbai, the conglomerate also pushed its private label products to kirana stores, which are likely to resist any move undermining their autonomy, analysts said.

"A significant chunk of [fast moving consumer goods] sales are still in the traditional channels, the mom-and-pop stores. They will also fight back," Sameer Shukla, west market leader of Nielsen India.

Moreover, not everyone is convinced that WhatsApp adds any significant value to Reliance's e-commerce push.

"In terms of actually digitizing the kirana stores, I don't think Facebook has too much to add, so it is not going to be an easy road for this partnership to gain market share," said Pranav Bhavsar, founder and head of research at investment advisory firm ASA Capital Management.

Instead, JioMart is expected to fall back on the cash-burning subsidy model to gain traction, just as cheap mobile rates propelled Reliance Jio to the market leader position. Additionally, Indian consumers are tightening their belts with the bleak economic outlook brought out by the COVID-19 outbreak.

Reliance says products on the newly launched JioMart site are 5% below market retail price and the company has also offered short-term loans as incentives for kirana stores to join its network and scale their operations.

"Indian consumers are extremely price-sensitive. They can easily switch providers for a rupee of transaction cost," Bhavsar said.

451 Research is an offering of S&P Global Market Intelligence.