On Friday, 6 Aug. 2021, the Supreme Court of India passed a judgement that it shall not interfere in the arbitration ruled by an international court in Singapore in the case involving India’s retail behemoth, “The Future Group” and the world’s largest retailer (though only e-commerce predominantly) – Amazon Inc. In between the loggerheads is India’s largest retailer by value, the Reliance Group with over Rs. 1 lakh crore in retail revenues.
In 2019, The Future Group had sold a partial stake in “Future Coupons”, a division of the flagship company “Future Retail” to Amazon. However, in 2020, the group sold off it’s entire business to Reliance Retail which didn’t go well with the American company. In a massive public showdown, the online retailer pulled The Future Group’s promoter, Mr. Kishore Biyani and the Management to Indian courts and subsequently to a Singapore Arbitrator. In Oct. ’20, the arbitration was ruled in favour of Amazon which put spokes on the ongoing deal between Reliance & The Future Group. The entire deal was stuck on paper until now and seems to be going nowhere with the recent SC judgement. According to media reports, The Future Group is said to file a special leave application to consider a revision and to argue further in this case why it should go ahead with its deal with the Reliance Group.
On the other hand, Reliance Retail doesn’t seem to be in any hurry to take things on its hands. The deal with the Future Group is probably a small drop in the company’s vast spread of the retail business which spans from grocery to fashion apparel, consumer durables, international brand tie-ups, toys and most importantly fuel retail, which it commenced over 20 years ago. The company has been on a buying spree for the past 18 months adding up iconic Indian start-ups such as the most recent acquisition of “Just dial”, Zivame, Urban Ladder and so on. Outside of retail, the company has been strengthening its entertainment and e-commerce portfolio with acquisitions such as Saavn, a music app, other tech support services and most importantly strengthening its e-commerce portfolio, Jio Mart.
Amazon India, meanwhile is expected to end the FY 21-22 with USD 5-6 billion and above in turnover, thanks to a prolonged WFH, intermittent lockdowns across the country and most importantly, consumers preferring to shop online more than ever before, be it grocery or laptops, household items, pet food and everything in between. So much so that Amazon and its direct Indian rival Flipkart, owned by Walmart Inc. have seen their highest turnover coming during the pandemic period than anytime before in the past decade. With a strong prospect for a retail momentum picking up in the coming years, Amazon picked up a stake in “Future Coupons” which in turn is owned by its parent, perhaps in a move to gain a foothold in the USD 850 billion pa Retail Industry in India. The company bought over Whole Foods Inc. a few years back in the US to pursue a seamless and integrated omni-channel retail model, especially in the grocery segment which in India, is fiercely competitive, with neighbourhood shops and local retail chains offering convenience, price and optional delivery services to customers. Amazon would have found merit that through the 2,000+ retail stores operated across India by the Future Group, which sell everything from toothpaste to perfumes, cosmetics to condoms under various formats such as Big Bazaar, FBB, E-Zone, among others the company could use these retail touch points as fulfilment centres, thereby enabling a fastest turnaround time to customers, which no other retail e-commerce chain can currently offer.
Reliance Jio-Mart has not yet built the level of complex algorithms as well as processes for a smooth, cost-efficient and customer friendly delivery where Amazon scores much higher than all its global rivals. In fact, one of the primary reasons for existing consumers to shop repeatedly on Amazon, beyond the aggressive pricing and choice offered by the company, is the smooth operating procedures, from customers being ale to track deliveries to the company taking back returns, without any clauses. New consumers are obviously pulled in to their ecosystem because of a positive word of mouth and there seems to be no stopping for the company’s growth potential which is soaring day after day.
Whether Amazon acquires The Future Group or Reliance, either of them have very little to gain from this acquisition as it is just a tip of the iceberg when viewed from an Industry potential point of view. The Future Group operates over 33 lakh sq. ft of retail space where as Reliance operates only 16 lakh sq. ft. However, from the size of its business, Reliance Fresh alone has an estimated annual turnover of Rs. 30,000 Cr. (Est. FY 21-22) whereas the entire Future Group’s turnover is less than half of this number. Other than grocery, Reliance Retail operates apparel businesses – an Indianised apparel format, international FDI-led fashion brands such as Brooks Brothers, Diesel among others as well as its recent acquisition that is Hamley’s, one of the world’s most favourite and famous toy retail chains. With the speed and scale at which Reliance is growing, it is expected to reach the same level as The Future Group in terms of real estate (especially due to the latter’s large format Big Bazaar stores), in 36-48 months, which is palpable by any means.
Unfortunately, it is the homegrown Future Group who’s future is in a sticky position. On one side, the company had to bid adieu to a handful of top talent during the past 24 months; a number of mid-level personnel moved over to greener pastures; customer interest in the business is waning due to lack of advertising and top of the mind recall, especially with the e-commerce giants such as Big Basket and Dunzo offering faster delivery of grocery at doorstep all through the pandemic; bankers and lenders behind the CFO’s office seeking dues and payments; and most importantly, the current macro-economic situation which is not in favour of the company, to say the least.
It is not the future of Amazon or Reliance Retail which is at stake, rather the future of the most respected Future Group which has laid a strong foundation in the country, establishing and nurturing the organised retail Industry in India over the past 20 years. One man and his vision coupled with unstinted hard work has led millions of Indian businesses to dream big. The next 90 days would be a major turning point in the Indian retailscape, what with the Indian Courts and the Government’s hand in trying to thwart the efforts of an internationally acclaimed retail chain to prevent from a hostile takeover, which will benefit the Indian diaspora and their sentiments. Interesting times ahead to watch. More on this, soon in our subsequent articles).
