Reliance - About Money and Monopoly


Anything in excess is always detrimental, even money. Money can be used to harm society at large. Let me explain. 

Context -

Before diving right into the topic, I want to give a little background about what we are going to talk- Retail. As per a report by Boston Consulting Group, the retail sector in India was $700 Billion and is expected to reach $1.3 Trillion in 2025

Now you have the glimpse of what we are talking about. 


Big Becomes Bigger -


Reliance Retail already had a firm foot in the sector by having 10,900 stores across India. It sells everything from Grocery, Apparel to electronics. 


A deal with Future group which owns Big Bazaar, Brand Factory, FBB, Easyday and Central has 1,800 stores under its name. Post this deal, Reliance’s number of stores is more than the total number of malls in the 8 top cities.


A Bit About the Deal -


In a slump sale, a sale where there is a lump-sum value paid rather than assigning value to each unit. Reliance acquires the retail, wholesale, logistics & warehouse business of the group by paying 24,713 crores. If you need to venture into any business, what do you need?


1. Store - where you can interact with the consumer. (Front end)


2. Warehouse - where you can store all your goods. (Back end)


3. Logistics - which can help in transportation.


In one shot, Reliance acquired the entire ecosystem, right? 


Post Deal Situation -

Reliance was already the biggest retailer in terms of the number of stores, this deal was just a cherry on the top!

A bit of number crunching -

Retailers often are measured in terms of space (in sq. feet) so this mammoth now has a retail space of 53 million sq. feet. Warehousing space of almost 18 million sq. feet.

Its grocery stores increased by 100% to touch 2,000 stores. Apparel was up by 23% to reach 2,900 stores. In simple words, Reliance now has almost 25-30% share of the organized retail space.

War With Everyone -

There are two forms of retail essentially,


1. Offline (Brick and Mortar)


2. Online (E-Commerce)


To give a sense of how business is done, Reliance is now in both the domains, scaring competitors either by its political clout or by cash in its kitty!

JioMart, Reliance E-commerce business offers products ranging from groceries, apparel to electronics in 200 cities of India. By this, it would tackle Amazon and Walmart, and by its extensive presence and reach in physical retail, it would compete with the likes of DMart and many more.


Everything Readymade!


If you acquire someone’s business 3 decades old, with a loyal customer base, good presence in areas where you did not exist. It is not a deal, but a blessing in disguise! 


Kishore Biyani, the founder of Future Group, led the revolution of retail. I want to point one more thing- Debt is a two-edged sword, in good times it makes you a king. But in bad times, it kills you! The very same thing happened with Kishore Biyani.


Consumer = King?


I am sure you must have come across this phrase - Customer is the kingpin. Everything in the market is done to cater to the consumer’s needs. But this does not happen in monopoly! It is a market form essentially where consumers are just robbed of their welfare and surplus, rather the seller is the king!


When a big fish becomes bigger, it is not only threatening to the competitors out there, but also the consumers! Trust me.


Now What?


To explain this point, I would like to give an example of the Telecom sector. When Jio entered, it used ‘Predatory Pricing’, a concept where a player offers a discount to such an extent that it disrupts the industry. It is strictly prohibited. But there was no action taken back then. 


India has a body for this, named CCI (Competition Commission of India) which ensures fair competition and protects the interest of all the players. Now, it is time for CCI to enter the picture because the gap is too much! DMart was the second-largest player in physical retail following Reliance and followed by Future.

 

When two players get together, it is a peril for the other one. 


Getting Scary Now!


Nothing is more dangerous than a businessman having political support and enormous cash. That is Mukesh Ambani. There is no government intervention when Ambani closes a deal. Now, if there is no other player of the same level as of Reliance, consumers have a reason to worry. 


FDI in retail was restricted on a simple premise that foreign players such as Amazon or Walmart could harm the small retailers, but now? Restricting FDI is simply letting Indian players become bigger which is an equal threat.


Conclusion


Growth is always good, but uncontrolled growth creates nothing but downfall. Debt is good, but too much of it has always been and would be detrimental. On the other hand, market share is good, but if it comes at the cost of consumers. It is a big no!


Telecom and Retail both these sectors are defensives and act as necessities for the consumers. Reliance has the biggest pie of both of it! It is a reason to worry.


Written by – Manvinder Arora    

Edited by  Ivanova 

  




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