Ecommerce store shoppers

How Reliance aims to become a one stop shop for all consumer needs

Reliance Industries, led by Mukesh Ambani, is booming as it continues to take over everything from fashion design companies to billion dollar solar tech companies.

Clearly, RIL’s management takes its motto – “Growth is Life” very seriously. Founded in the 1960s, the company grew rapidly over the span of a few decades, leaving behind several much older trading houses.

Energy: fuel and beyond

RIL has always focused on vertical and horizontal integration between sectors as a way to grow. In the 1960s, Reliance Commercial Corporation was trading textiles, by the 1970s it was already manufacturing and marketing textiles under the Vimal brand. In the 1980s, the company established itself as one of India’s largest producers of textile chemicals. And by the 1990s, it had entered the crude refining business that would fuel its expansion for the next three decades.

Today, refining is the cash cow that generates funds to finance further expansions. In addition to being one of the largest suppliers of petrochemicals in the world, it also operates 1,400 fuel pumps across the country for vehicles and airplanes.

Like other petroleum marketing companies, it plans to expand into the field of fuel pumps with partnerships with local operators. British Petroleum has bought a 49% stake in the fuel pump business and the new petrol pumps are expected to operate under the Jio-BP brand.

But its focus in the energy space has shifted beyond petrochemicals to electricity. But rather than focusing on conventional energy sources like thermal power plants, he plans to focus on renewables. Reliance New Energy Solar Limited has previously invested in companies like Sterling and Wilson Solar, REC and Ambri Inc.

New investments in renewables serve as a hedge against the potential decline in oil demand in the future. In addition, renewable energies would allow RIL to reduce its carbon footprint. In an age when all businesses, banks and investment funds are increasingly concerned with the environment, “net” emissions reporting can allow companies to keep the cost of capital lower.

Telecommunications: create a super-application

Reliance’s foray into the telecommunications space has been quite eventful. He single-handedly managed to drive several telecom players to the brink of bankruptcy with his strategy of free distribution of SIM cards and data. The idea propelled him to the top spot in the telecommunications space in no time. But unlike other telecommunications companies, Jio had never focused solely on providing data and calling services.

RIL sought to create a complete digital ecosystem that delivers entertainment, payment services, news, e-commerce, health services, news subscriptions, and other use cases all within the same app. Jio has already made a foray into the entertainment industry with its investments in Balaji Telefilms, Eros, JioSaavn and JioStudios.

To improve its offer, Jio bought rights to film libraries in order to improve its offer. These investments have enabled Jio to bundle several other products with its data services. With the bundle, users don’t have to pay for entertainment services separately, creating a strong value proposition for them. The payments arm, JioUPI, is competing with Google Pay and BharatPe to become a preferred UPI platform for its users.

The previous year, Jio had raised $ 15 billion from reputable investors and sold its network of physical assets through the Digital Fiber Infrastructure Trust. Financial engineering has enabled RIL to move closer to its “net zero debt” ambition, while preparing the dry powder for future investments.

Retailing everything from salt to drugs

The retail business spans several segments such as fashion, grocery, electronics, jewelry, convenience stores, drugstores, furniture, toys, footwear and other segments. Despite the debilitating effect of the pandemic on the retail industry, Reliance has grown its retail operations quite aggressively.

In the field of fashion, she has forged partnerships with several global brands such as Armani, Muji, Marks & Spencer, Gap, Diesel, Jimmy Choo, Paul Smith and many others. She recently invested in the companies of fashion designers Manish Malhotra and Ritu Kumar to expand her offering beyond Western brands. Fashion retail has some degree of backward integration as RIL operates several large textile manufacturing plants.

Reliance Retail plans to open convenience stores under the 7Eleven brand, while its foray into the furniture segment has been facilitated by the acquisition of Urban Ladder. In the healthcare segment, she developed her physical footprint by creating NetMeds stores. Jio Health is another health product that allows users to visit doctors, book lab tests, and manage health records. The acquisition of Hamley’s in 2019 allowed RIL to enter the toy retail business.

In addition to the business-to-customer (B2C) segment, Reliance Retail has leveraged its strong distribution network to replace the middleman in the distribution sector.

For example, Hindustan Unilever Limited (HUL) signed a contract whereby Reliance would be responsible for the direct transport of goods from HUL to retail stores. In addition, Reliance has embarked several thousand small kirana store owners on its business-to-business (B2B) platform.

JioMart, a joint venture between Reliance Retail and Jio Platform, aims to become the leading e-commerce platform in India. It has a heavy focus on groceries, but also sells clothing, lifestyle products, and home essentials in some areas.

The platform offers users free shipping with no minimum order requirement, which puts it ahead of competitors who typically charge a shipping fee and have a stipulated minimum order quantity. JioMart’s rapid rise in cities is the result of a strong existing distribution network and retail experience across the country.

Diversification or Diworsification

Nevertheless, the question of creating value for investors remains. In the past, several companies have attempted to diversify quickly, often ending up with high leverage and sub-optimal results. The Tata Group’s acquisition of Jaguar Land Rover and Corus Steel destroyed shareholders’ wealth.

In Reliance’s case, it faces intense competition from retail companies like Amazon and Walmart. The renewable energy space is also populated by several major players seeking to defend their territory. The Adani Group, which owns several large infrastructure companies, partners with Reliance every step of the way.

Heavy investments in different segments, without any immediate economic reward, caused Reliance’s return on capital to drop to a sub-optimal level of seven to eight percent. Only time will tell if the expansion creates value for Reliance investors.

Leave a Reply

Your email address will not be published.