JioMart wants to revolutionise the e-grocery space.

It is starting with the

BY SOUMYA GUPTA 16 Jul 2020 •

It’s a done deal. Google will invest INR33,737 crore in Jio Platforms for a 7.73% equity stake at
a valuation of INR4.36 lakh crore, making it the 13th investor for Reliance Industries in a little over
two months.

Now along with Google, 12 other marquee investors, including Facebook, which invested IN1243,
crore for a 9.99% stake, have pumped a total of over INR1.5 lakh crore into Jio Platforms – RIL’s
digital-services venture offering everything online — from entertainment to education to grocery.

As Jio Platforms continues to rack up the dollar investments, let’s focus on its grocery business
and what the company is trying to accomplish through it.

JioMart, launched in May as an app and website to order essentials, is one more voice in a market
buzzing with e-commerce giants to traditional supermarkets and food aggregators hawking atta-
dal (flour-pulses) to the online Indian. In Wednesday’s annual general meeting, Reliance
Industries’ Chairman, Mukesh Ambani announced that JioMart will move to sell pharmaceutical
and healthcare, electronics, and apparel as well. Jio Platforms’ Executive Director, Isha Ambani
said JioMart would be built on the twin pillars of customer satisfaction and kirana delight’.

So, what exactly is JioMart solving for? Since the beginning, JioMart has been emphasizing on
bringing small stores online, thereby putting the kirana-store owners at the centre of its plans. It’s
a grand vision — making the trade channel, which accounts for 80%-95% of India’s consumption,
omnichannel and help it grow.

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Several companies have already been working on this piece, with various potential revenue
streams. What’s in it for Reliance and why is the country’s largest retailer, with grocery revenues
of over INR23,000 crore in FY19, investing in the humble kirana?

Building an ecosystem

When a firm attempts to digitise kirana stores, this is the ecosystem it works with.

In this (sort of) straight line from the brand manufacturer (or farmer) to the consumer, the kirana
store is the middle point. Anyone trying to digitise the general-trade ecosystem can choose to solve
for the value chain between manufacturer and store, or between the store and consumer. Some are
doing all of it.

Solving for the brand-to-store ecosystem means building a B2B e-commerce platform for store
owners to order goods. Several tech-startups are invested in this infrastructure. Mobisy
Technologies (Bizom), Peel-Works, Udaan, Storeking, and Jumbotail in varying ways help
connect kirana-store owners with manufacturers of consumer-packaged goods (CPG) to buy in a
streamlined manner. Why does this help? The entire general-trade set-up in India is built on
margins that flow from one step to another —from manufacturer to the retailer via stockists,
wholesalers, and distributors. Eliminating those middlemen with B2B e-commerce helps save
margins. There are also some savings in efficiency because many of these firms will offer logistics,
inventory management, and even payments management. The end goal is to take the kiranas’
supply chain and inventory management fully online.

In return, the kirana store gains as the customer of a B2B e-commerce platform.

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What’s in it for the ‘digitiser’? The one revenue stream companies have is via margins from their
own goods sold to the kirana-store owner — this will be comparatively lower than the margin
structure the kirana was facing earlier.

What’s in it for Reliance?

The traditional wholesale and distribution network that India’s CPG companies have relied on for
sales for nearly five decades. Reliance, with its vast procurement capacity feeding into the grocery
business (Reliance Fresh, Reliance Smart) and a wholesale business under Reliance Market, has
the financial muscle to rival this entire network which is fragmented among several hundreds of
small, offline suppliers.

Besides, Jio Platforms is the services arm of a telecom company, and these services grow on the
back of better customer data. A digitised store is a goldmine of hyperlocal information — what
someone is buying, every day, every week, in a given neighbourhood, broken down by price,
frequency and to the last household.

So far, powerful brand manufacturers such as Hindustan Unilever, P&G, Colgate, and others have
relied on getting market data from agencies like Nielsen that conduct ‘channel checks’ — surveys
among a highly limited universe of retailers to estimate what consumers are buying, and
extrapolate details like the market share of brands in various categories from this data. Now, with
a larger size of actual kirana store customers, these 13213 e-commerce platforms have a robust
database of real sales (rather than estimates) that can be monetised in several ways. This is the
bigger revenue stream for anyone taking the kirana stores online.

Market data is valuable, and in a country where 95% of CPG sales happen in offline kirana stores,
companies will go the extra mile to invest in something reliable.

These revenue streams offer two possible futures for jioMart. But more on that in a bit.

JioMart vs. others

Let’s take a look at how e-grocery is happening so far, with or without kiranas. At face, JioMart
seems similar to its competitors like Bigbasket, Grofers, Amazon Pantry, but the difference lies in
the age-old concept of marketplace versus inventory. Almost all successful attempts at e-grocery
have been built on the inventory model. Bigbasket, for example, competes with DMart and the
local distributor-kirana linkage to procure goods at better margins and sell them to consumers.
They are not creating an ecosystem; they are shifting existing buyers to their part of the business.

Kirana digitisation: With lockdown, the attempts at digitising the ecosystem have focused on the
ecosystem’s last leg — the journey between the kirana and the customer. Zomato, Swiggy, Dunzo,
and others have worked to bring kirana stores on their online marketplace while offering them
cataloguing, payments, and inventory-management software, bringing them orders from latent
online demand and doing their last-mile delivery. This has given kiranas a fighting chance against

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e-grocery, especially at a time when e-retailers went offline, unable to deal with the demand rise
and drop-in access to labour. Kiranas were more resilient.

“During Covid we realised that merchants [kirana-store owners] were facing two issues. One, they
had demand but could not fulfil it because of supply disruption; and two, they had no demand
because customer walk-ins had stopped,” says Kaustabh Chakraborty, merchant lead at hyperlocal
logistics firm Dunzo. “This is what we solved for. We showed the merchant that we have a lot of
demand online and we said we will help them manage their working capital better.”

What Dunzo did was plug the kirana store in its fleet of rider-partners, catalogue their top 500
SKUs (stock-keeping units) with their own bank of images, offering them an interface to use with
a few days training, and then going live with them in their neighbourhood. The revenue stream? A
margin of the kirana business depending on the store size and product category being sold.
According to Chakraborty, kiranas pay them between 1% and 15% margin on the sales they make
through Dunzo, which is a standard e-commerce fare.

This is what Near.Store, launched in March this year, has also been doing. It has signed up 126
stores in Mumbai so far. Near.Store has a device connected to the bar-code scanner and the billing
machine. Each time a product is sold and swiped on the scanner, the product with the image
appears on the kirana’s online shop on Near.Store’s B2C e-commerce website. Unlike Dunzo,
Near.Store also charges rent on the devices it offers these stores, which currently is INR300 a
month, in lieu of being listed on the online platform.

Easing a kirana store into the network is crucial: It is not enough that they want to go online.
A kirana-store owner is swamped with managing inventory, especially because it is often entirely
offline, and now it is even harder to track ever since the lockdown started and supplies are
disrupted. Also, in the absence of manpower and easy access to logistics, kirana-store owners are
having to double-time managing the store on their own and often trekking up to their distributors
or the APMC to pick up supplies. “What works for us is that our solution does not require any
behavioural change. As the cash-counter guy does his regular job, that very same process builds
the store out,” says Ashish Kumar, co-founder of Near.Store.

“Onboarding is a logistical challenge even today,” says Dunzo’s Chakraborty. “In the last 18
months, the onboarding process has been streamlined. Processes that were manual earlier, like
physical agreements, are now done online. For example, we now upload documents, do digital
signatures. We also take your documents on WhatsApp and upload it in the system ourselves.
These processes have become seamless.” With greater efficiency come new revenue streams.

Going full-stack is the endgame: So far, companies are either on one end of the kirana midpoint
or another. The endgame for some is to be the ecosystem, not simply facilitate it. Google
Launchpad startup LoveLocal (previously called m.Paani) has been building a full-stack for small
stores that are brought online. So, while previously the company focused on building a customer-
facing retail platform that displayed small local stores and their SKUs online, now LoveLocal is

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building an on-demand logistics arm LoveLocal Logistics via logistics firms’ partnerships. It is
also piloting a supply-chain arm called LoveLocal Supply allowing kirana stores in the network
to order groceries online from suppliers (distributors or manufacturers). For LoveLocal, revenue
comes from transaction and platform-service fees from retailers on board, from brands being
supplied and sold through these retailers, and from the supply partnerships that LoveLocal is
working on. The company’s customer is the kirana store, a crucial plugin cultivating end-
customers.

“Anyone who is building for consumers first will probably set up dark stores (company-owned
fulfilment centres),” says Akanksha Hazari, founder of LoveLocal. “They don’t treat retailers as
the core customer. Has anyone made a retailer-first app?” In all these models, there are several
revenue streams and points of focus, but the kirana remains indispensable for it all to work. In
most cases, the kirana is the customer. “We invested in Near.Store because it is trying to build on
the existing infrastructure of the local kirana. It doesn’t compete with the grocer but is trying to
make sure they remain competitive, almost like a Shopify for kiranas,” says Manu Chandra,
founder, Sauce.vc, a fund that invests in consumer space.

The possible JioMart blueprint

That is how JioMart also started out. In 2018-19, Reliance worked on a Navi Mumbai pilot to
onboard small stores on the Jio network by offering mobile points of sale for INR3,000 apiece.
That’s how companies like mSwipe came into focus as Reliance seemed to be treading on their
business model. Then, JioMart was launched on WhatsApp - - taking orders through messages to
a direct business account number. But there was an obvious drawback to this approach. Without a
platform to browse the catalogue, the store restricts itself to selling only what the customer thinks
they need, removing avenues of increasing cart size and impacting sales. JioMart now has an app
and a website to buy groceries, but it is unclear if orders are exclusively being fulfilled from kirana
stores on their network. The service is available in 200 cities since May but by all reports, the
kirana-store onboarding was largely confined to the Mumbai region, where it was being piloted.
If one were to browse and build order on JioMart right now, it is not even clear that a local kirana
store is the one fulfilling it. Contrast this with Dunzo or Swiggy’s grocery-delivery service for
example — you can choose the store you want to shop from. Now, JioMart may be using a
combination of kirana stores and its own wholesale business Reliance Smart to fulfil orders —
after all, JioMart is open to many more PIN codes but the kirana-store onboarding has largely been
in the Navi Mumbai and Thane (satellite cities of Mumbai metropolis).

So, what exactly is JioMart building? Here are our scenarios.

Co-opt the kirana network: Imagine for a minute that JioMart could cover all PIN codes through
its wholesale arm as well as a local kirana-store network. Which one would it prefer to fulfil orders
within the long term? The moves it is making, point to the former. Fewer steps in the chain between
brand and customer means more money. For instance, Reliance launched Jio Krishi in February, a

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‘farm-to-fork’ platform to help stores source fresh produce within a 12-hour window directly from
farmers. However, Reliance already attempted this through Reliance Fresh in 2007, with the
intention of direct procurement for its modern-trade store network. Reliance Fresh and Smart
dominate fruit and vegetable sales in modern trade in India, by virtue of the size of the business.
This makes the kirana only incidental to JioMart’s plans; a way to get customers excited about the
brand name, and to study their habits in a local store (versus a supermarket network that Reliance
owns) so that the platform is ready to function. In this scenario, over time, JioMart will become a
well-funded rival to the likes of Bigbasket, Amazon Pantry, Grofers, and others, working on an
inventory model and riding on the muscle of its already-large grocery operation and back end.

Co-opt all of India’s general trade: Mukesh Ambani has been emphatic in his mission to digitise
the kirana store. So, it is difficult to assume that those plans would simply be discarded halfway
even if JioMart’s integration with the kirana network is unclear in its current avatar. The more
ambitious and likely scenario is to co-opt the entire general-trade ecosystem completely. The
fragmented network of distributors, wholesalers, and retailers means branding and pricing power
is firmly in the hands of CPG manufacturers. They decide prices, fix margins for those under them,
and everyone else works their business models around these margin structures.

While Reliance is a mammoth in modern trade, that channel accounts for only 10% of India’s CPG
consumption and even less for very fast-moving goods like fruits, vegetables, and staples. Reliance
could continue investing in growing its presence by expanding or acquiring, but the kirana-tore
network in India is not going to disappear from the Indian consumer’s habit. But if Reliance were
to become the kirana’s primary ecosystem — link to the brand manufacturer, logistics supplier
from the factory to store, last-mile delivery, and source of additional customers (outside walk-ins),
then the balance of power on pricing CPG goods will shift from the manufacturers to those
ensuring it actually reaches the buyer — in this case, Reliance.

“Compare this to the US pharmaceutical-distribution network, for example. There are only two-
three distributors there, and so they have enormous pricing power over pharmaceutical
manufacturers,” says an investment-banking executive, requesting anonymity. “Reliance
controlling the backend for kirana stores will ensure they have similar bargaining power over
FMCG manufacturers.”

Concentrated bargaining power creates an ecosystem where retailers are consolidated, margin
structures are simplified, and — as a microeconomic rule — prices usually rise. All of this,
hypothetically, is money in Reliance’s pocket.