Insight: Princes to paupers: India's salesmen face ruin as tycoon Ambani targets mom-and-pop stores

Tata Consumer Products

22/11/2021 01:43

* Reliance billionaire's JioMart app aimed at 'kirana'
stores
    * Tiny shops account for 4/5ths of India's $900 bln retail
sector
    * Kirana switch to JioMart slams traditional salesmen,
channels
    * 'See how much you've been ripping us off!' -storekeeper
    * Distributors challenge Ambani, block JioMart deliveries 

    By Abhirup Roy and Aditya Kalra
    SANGLI, India, Nov 22 (Reuters) - For eight straight days,
household goods salesman Vipresh Shah has failed to sell a
single pack of Dettol soap to the storekeepers who have been
buying from him ever since he took over his family business as a
teenager, 14 years ago. 
    Shah is an official distributor for Britain's Reckitt
Benckiser  RB.L  in Vita, near Sangli city, around 200 miles
south of Mumbai. But he said once-loyal customers now point to
an app - JioMart Partner - on their smartphones showing prices
up to 15% lower, instead of placing orders.
    "As Reckitt's distributor, I used to be like a prince in the
market," said Shah. "Now the buyer tells me, 'See how much
you've been ripping us off!'"
    The 31-year-old said he lost $2,000 of his own money as he
discounted products to match prices on JioMart, the app rolled
out by Reliance Industries billionaire Mukesh Ambani in his
drive to revolutionise retail https://reut.rs/3olTzsa
distribution in India.
    Up and down India in places like small town Vita, the
mom-and-pop stores that account for four-fifths of a near-$900
billion retail market https://reut.rs/2OYLmMV - more than $700
billion - are increasingly turning to JioMart to stock up on
foreign and domestic brands.
    Just as Ambani, India's richest man, has disrupted the
country's telecoms industry, the tycoon is intent on shaking up
retail distribution, taking on U.S. e-commerce giants like
Amazon  AMZN.O  and Walmart Inc  WMT.N , expanding fast in
India.
    The country has around 450,000 traditional distributors, who
have legions of salespeople to service every corner of the vast
nation, including 600,000 villages. They typically earn a margin
of 3-5% on product prices and mostly take orders physically once
a week, making deliveries to retailers within a couple of days.
    But Reliance's model throws a wrench in that supply chain:
the mom-and-pop stores, known as 'kiranas', can order goods on
JioMart Partner with deliveries promised within 24 hours.
Reliance also offers training on ordering, credit facilities and
free product samples for affiliated kiranas' customers.
    That means hundreds of thousands of salesmen representing
consumer giants like Reckitt, Unilever  ULVR.L  and
Colgate-Palmolive  CL.N , face an existential threat to their
business, according to interviews with salespeople, 20
distributors and a trader group with members across India.
    Many of the distributors contacted by Reuters said they have
slashed their workforce or vehicle fleet, seeing their sales
from door-to-door agents drop 20-25% in the last year as
shopkeepers partner with Reliance.
    In Vita, salesman Shah said he has had to lay off half of
his staff of four. He fears the 50-year-old family firm might
not last beyond the next six months.
    
    'GUERRILLA TACTICS'
    The scale and speed of the disruption have triggered
tensions between traditional distributors and Reliance that have
boiled over into physical confrontation in some cases.
    In Maharashtra state in the west - home to Vita - and Tamil
Nadu in south, traditional salesmen have organised blockades of
some JioMart delivery vehicles.
    "We will employ guerrilla tactics," said Dhairyashil Patil,
president of the All India Consumer Products Distributors
Federation, which represents 400,000 agents of local and foreign
consumer firms. "We will continue to agitate," he told Reuters,
"we want (consumer goods) companies to realise our value." 
    Reliance remains undeterred in pushing ahead with Ambani's
"new commerce" retail venture, first announced in 2018.
    Last year it raised funds from marquee investors including
Silver Lake Partners and KKR & Co Inc  KKR.N  as it seeks to
integrate mom-and-pop stores in what it has touted as a more
inclusive approach to digital commerce. That push is widely seen
countering the likes of Amazon, which have for years faced - and
denied - claims in India of favouring select big sellers at the
expense of smaller retailers.
    A source close to Reliance said the company was determined
to keep expanding its business for mom-and-pop stores. It
believes its model can co-exist alongside the traditional
approach in one of the world's biggest retail markets, the
person said, declining to be identified because of lack of
authority to disclose company plans.
    Ambani in 2018 said he eventually wanted to connect 30
million small merchants to the Reliance network. So far, it has
300,000 merchant partners in 150 cities who order consumer goods
from Reliance, but the transformation will be magnified many
times over if it meets a target of adding 10 million partner
stores by 2024.
    Reliance did not respond to requests for comment for this
article. 
    Colgate declined to comment, while Reckitt said its
customers and distributors were an integral part of its business
but it does not comment on its relationship with them.
Unilever's India arm, Hindustan Unilever,  HLL.NS  did not
respond to a request for comment.
    
    WHICH CHANNEL?
    The traditional distribution methods remain important to the
consumer goods makers, even amid the disruption, industry
watchers say.
    Himanshu Bajaj, former Asia consumer and retail head at
consulting firm Kearney, said CEOs of consumer firms he met in
September raised concerns about Reliance's strategy upsetting
the traditional distribution chain.
    "The companies don't want to kill their own distributors.
The worry is real," he said.
    Asked about Reliance's model and concerns among
distributors, Sunil D'Souza, CEO of India's Tata Consumer
Products  TACN.NS , told Reuters in an interview last month it
"can't afford to sit back and ignore" any major distribution
channel, but Tata was trying to minimise conflict and strike a
balance.
    Jefferies in March estimated kiranas will "steadily increase
the share of procurement" from Reliance "at the cost of
traditional distributors". Such sales for Reliance could
mushroom to $10.4 billion by 2025 from just $200 million in
2021-22, Jefferies estimates.
    One executive who works for a rival to Reliance said Ambani
"was spreading his wings very fast" in servicing kiranas and
already has an edge on negotiating prices, due to long-standing
relationships with consumer good makers which have for years
counted Reliance and its 1,100 supermarkets as a big client. 
    With kirana partners, Ambani is adding another, major
vertical. "Brands cannot afford to sideline Reliance, it's just
their sheer purchasing power," said the executive, who declined
to be identified as he wasn't authorised to speak with media.
    
    ALL ABOUT PRICING
    Many kiranas are cramped shops in ageing buildings, where
branded products are placed on wooden shelves and small sachets
dangle from the ceiling. Such retailers are embracing Reliance
as a means to boost profit margins.
    When Reuters accompanied Anuruddh Mishra, a sales agent for
Colgate, during a field trip in Mumbai's Dharavi area, he
struggled to convince Shivkumar Singh, the 50-year-old owner of
a dilapidated store, to make purchases. Dharavi is home to 1
million people and rated one of the world's biggest slums. 
    Singh opened his JioMart app and showed the far lower prices
on offer. "How can I order from traditional distributors?" he
said. "The difference in price is huge. Now I order mostly from
Reliance."
    A Reuters review of purchase deals on the JioMart Partner
app showed the Dharavi retailer could bulk buy a two-tube combo
of Colgate MaxFresh toothpaste for about 115 rupees ($1.55).
Salesman Mishra's distribution company gets it for 145 rupees,
and his last offer to the Dharavi retailer was 154 rupees -
still more than a third higher than the Reliance price.
    Back in Sangli, traditional distributors said they have at
times chased down Reliance vehicles and confronted drivers,
alleging unauthorised deliveries.
    Sunil Pujari, who works in the city for one JioMart delivery
agent, said he had been warned by his supervisors to immediately
alert them if angry distributors stopped vehicles.
    But business remains brisk. 
    "Prices offered by JioMart cannot be matched by anyone," he
said, making another delivery in a crowded market.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
In India, Reliance Retail's private labels revolution spooks
global consumer goods makers    https://reut.rs/3olTzsa
Factbox: India retail - A nearly $900 billion market dominated
by mom-and-pop stores     https://reut.rs/2OYLmMV
 
India's Tata gets bullish on e-commerce just as rules threaten
to transform market     https://reut.rs/3ktyIlH
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Abhirup Roy in Sangli and Aditya Kalra in New
Delhi; Editing by Kenneth Maxwell)
 ((aditya.kalra@tr.com; +91-11-49548021; Twitter @adityakalra;))