Bezos vs. Ambani isn’t the only retail bout in India

A murderous battle for supremacy between two of the world’s richest men is hogging the spotlight, but the silent changes in India’s retail landscape deserve equal attention.

The ongoing digital transformation of corner kirana stores, tens of millions of stores serving 1.3 billion consumers, will be significant for everyone from Unilever NV and Procter & Gamble Co to the State Bank of India (SBI ), the largest lender in the country. It will also be important for Amazon.com Inc boss Jeff Bezos and Reliance Industries Ltd (RIL) president Mukesh Ambani. ??

The two billionaires are circling around an Indian trader in crisis. The Future Group founder took Bezos’ money, but sold his debt-laden business to Ambani when the pressure from the pandemic got too much. Amazon is in Indian court to scuttle the $ 3.4 billion sale, which could end up making Reliance’s dominance over the consumer economy unshakable.

Away from this much-publicized struggle for the ordinary Indian’s wallet, another competition is brewing for control over what happens on the store shelves. Reaching small stores in a country of over 660,000 villages and 8,000 towns and villages has always been a tough struggle for brands. Even Unilever, which has been in India for almost a century, can barely reach 15% of all retailers directly. According to investment research and asset management firm Sanford C Bernstein & Co, it needs wholesalers to increase that reach to over 80%.

Wholesalers rely on their knowledge (and trust) of retailers in their neighborhood. But these relationship-driven networks are small and expensive. Opening them wide with digitization is the great opportunity. Udaan, a start-up that in five years has taken 80% of the B2B e-commerce market, delivering goods it stores in 200 warehouses nationwide to more than 1.7 million retail stores in 900 cities every day.

Suppliers get their money on time after Udaan takes their products. Retailers get credit they would otherwise get at high interest rates from wholesalers. Everything takes place on a smartphone app, which helps small merchants establish a history of reliability in payments. Banks and financiers gain the confidence to lend the required working capital, and brands have less complicated access. From manufacturers and millers to farmers, pharmacists, hotels, restaurants and grocery stores, the platform has 3 million registered buyers and sellers.

As Vaibhav Gupta, one of Udaan’s three co-founders, says, “We have solved the problem of Internet trust.” The company is supported, among others, by Lightspeed Venture Partners, one of Snap Inc’s early investors, and Yuri Milner’s DST Global. It is one of the fastest growing unicorns in India, as startups valued at $ 1 billion or more are known.

Sujeet Kumar, another co-founder, attributes some of the success to the Goods and Services Tax of 2017. With multiple rates and high compliance costs, the GST is a hefty consumption tax, but it’s flat. all over India. Warehousing decisions that were once driven by a confusing assortment of local picks are now driven by efficiency.

Mobile internet is without doubt the centerpiece. Ambani entered India’s telecom industry with its 4G network in 2016 and slashed data prices where they are cheapest in the world. The average kirana owner now owns a smartphone and doesn’t hesitate to use it. With a little training, lack of education is not a barrier to overhauling stale business practices.

To disrupt does not mean to ape the West. Kumar and Gupta were part of the team that built Flipkart as India’s answer to Amazon and left it two years before Walmart Inc. bought the e-commerce site for $ 16 billion. Amod Malviya, their third partner, was the CTO of Flipkart. At Udaan, however, the founders did not copy a global model.

It is because there is none. While affluent e-commerce consumers may have similar preferences to their Western counterparts, the vast majority of price-conscious shoppers purchase everyday items in small quantities. “The kitchens and refrigerators are small and the median shoe buyer pays Rs 200 ($ 3),” Gupta explains. Since mobile commerce arrived in India before connected desktops became a thing, even bigger ticket buying decisions don’t start with elaborate online research.

Udaan was built for the India in which its founders grew up. Kumar arrived at the Indian Institute of Technology in New Delhi from Bhabua, the main town of an earth-poor district in the poor state of Bihar (annual income per capita: $ 630). The distance between Bhabua and Udaan in Bangalore is not measured in kilometers or miles, but in decades of progress that mobile internet tries to reduce in years. As a supply chain specialist, Kumar does not seek to fundamentally change behavior. It simply removes inefficiencies to speed up the flow of capital. This is crucial for retailers who work with 10-12% margins, half of what their peers earn in the West.

The business-consumer side of retail is both deeply political and trapped by regulatory minefields. New Delhi’s grip on foreign-owned e-commerce – Amazon as well as Walmart-Flipkart – is tightening as Prime Minister Narendra Modi pursues a more nationalistic economic agenda. Ambani has the advantage, but Bezos is far from giving up. The Seattle-based e-commerce giant recently announced plans to manufacture its Fire TV Stick devices locally, supporting Modi’s Make in India campaign.

Will the kirana become collateral damage in the tycoon war? Maybe not. Even by the end of this decade, when India’s retail market hits $ 2 trillion, tripling since the start of the data revolution, small stores will account for 65% of the share, Bernstein estimates. . However, just under half of their exchanges will have gone digital by then.

Startups like Udaan will modernize the back-end. In doing so, they will increase the value of the prize that Ambani and Bezos are arguing over – by the storefront.

(Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services)

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