Gimme More!

Shriram Sanjeevi | Updated on October 04, 2018 Published on October 04, 2018

More in the cart Amazon gets access to over 540 retail stores in its offline retail play   -  M_Karunakaran

Why Amazon’s purchase of More could pay off better than Walmart’s Flipkart acquisition

I have often said that the Indian Retail Industry is witnessing a massive war between David & Goliath — the traditional retailers (kirana stores) and modern retail. Who is the Goliath is easy to guess — the kiranas, of course. They outnumber modern retail stores by their sheer presence, accessibility and proximity to consumers.

When I joined the retail industry two decades back, there were hardly a few companies in this space, with RPG Retail pioneering the Food & Grocery (F&G) space while Pantaloon Retail (now Future Group) led the apparel retail business. Slowly, Tatas, Birlas and finally the Ambanis entered modern retailing and today the big four command almost 80 per cent of the volume of the total modern retail business.

The deal with More

In the fiercely competitive F&G retail, most companies make 12-15 per cent Gross Operating Margin and, therefore, focus a lot more on private labels where they gain higher. The cost of running modern retail stores is super expensive, with high rentals, hefty wage bills and other business expenses.

Aditya Birla Retail, which created and popularised modern menswear in the late ’90s and 2000s with iconic brands like Louis Philippe, Van Huesen and the mass market Peter England, entered the F&G space a decade back with its acquisition of Fabmall, a retail chain that was born out of India’s first e-retail venture along with Trinethra Retail.

Slowly they built More as a neighbourhood go-to retail store for F&G pan-India. They evolved it with More hypermarkets, which were best of the flock at one time. In the run-up to scaling the number of stores across geographies to match other players, along with deep discounting to match competitor pricing, store profitability and business viability took a hit. Over time, More lost its sheen.

While the company made significant investments with every leadership change, the Birlas finally decided to exit, with More being sold to Samara Capital and Amazon last fortnight, for an estimated ₹4,200 crore. As with any transaction, there is always someone who gains more than the other. And it is obvious at this stage that Amazon has gained more than the Birlas.

Walmart’s bet

With its acquisition of Flipkart for a whopping ₹14,000 crore earlier this year, Walmart seemed to have created a dent in the Indian Retail space, though many dubbed the deal as unworthy and meaningless (thanks to mindless expenditure on discounts, promotions and customer acquisition over the last 10 years by Flipkart). However, Walmart gets immediate access to about 200 million online users (this number depends on how we consider them — active users who transact business online or those like my mother and aunt who have a Facebook account).

The expectation is that these 200 million users would become e-commerce patrons soon. India is a young country and is expected to become the one with the lowest mean age of 29 years by 2025. So, coupled with a deep push on “Digital India”, lower cost of accessing the internet and cheaper laptops and smartphones, there is hope that Walmart-Flipkart would gain significantly with these users.

On the other hand, Amazon gets access to over 540 Retail Stores of More and there is a huge case for creating the largest omni-channel retail model in the world, perhaps. Amazon’s acquisition of Whole Foods last year in the US prepared Indian retailers for a similar buyout and More benefited the most.

Meanwhile, Amazon already has smaller manned kiosks in many small cities of India which help the rural consumers order online and collect their purchases from there. This is growing slowly but steadily. Amazon Go, the unmanned Convenience Stores in the US and Amazon 4-Star Stores featuring the top-rated sellers on their website, are a distant cry in India yet.

Advantage Amazon

Between the two, my personal bet is on Amazon’s offline retail play with More. With over 85 per cent of customers still buying at traditional retail outlets in India, no stone has been left unturned by modern retailers to get them into their stores. Yes, there has been a small population that has directly moved from shopping at Kiranas to E-commerce, but that number, even if it grows in multiples every year, cannot match the compounded annual growth of offline retail. With more consumers disillusioned with e-commerce, according to recent news reports, and offline modern retail companies making inroads into all metros, mini-Metros as well as Top 100 Tier 2 towns and beyond, Amazon stands a better chance to grab more customers with its stake in More and Shoppers Stop (which it acquired in 2017).

Walmart gets access to online users and perhaps a lot of Big Data on their buying behaviour but that’s more knowledge than business, while Amazon has the immediate capability to reach consumers on a daily basis at its Offline Stores and hence make best use of its buy. This will not be a longtail, the jury will be out in less than five years. And that’s not my guess, rather my bet.

Shriram Sanjeevi is founder of Miles2GoConsulting Services and a retail veteran who observes and analyses industry trends

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Published on October 04, 2018
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