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  • Writer's pictureMuzammil Hussain

Competitive Positioning Analysis for an e-commerce firm

Updated: Sep 24, 2020

Through this article, I have tried to portray the analysis of competitive position of an Indian e-commerce firm - Reliance JioMart


Firm in consideration


JioMart – It is the e-commerce venture of Reliance Retail, a subsidiary of Reliance Industries Limited (RIL), India.

Reliance Retail is the largest retailer in India in terms of revenue.

Jio Platforms is a next-generation technology platform focused on providing high-quality and affordable digital services across India, with more than 388 million subscribers. It will provide technology support to JioMart.

The JioMart works on online-to-offline (O2O) business model which means that the customers can buy products directly through the app from nearby sellers. It’s an aggregator platform that will provide packaged consumer goods (CPG) and kitchen supplies now. Later, plan is to include other product categories, such as, appliances, electronics, apparel and footwear.


Recent Investments in Jio Platforms

Industry Analysis


Retail in India


Retail market of India is the 4th largest in the world – after USA, China and Japan. India’s retail industry accounts for 10% of the country’s GDP and 8% of employment. It is projected that by 2021, 75% of the retail sector would be unorganized (currently 88%), 18% organised (currently 9%) and 7% e-commerce (currently 3%).


Online Retail


It refers to the selling of products by a particular retailer through online channel on its website or mobile app. It is one form of e-commerce but not exactly the same. Products may be delivered to the customers or they can physically pick-up from stores.


e-commerce


It refers to the selling of products by different sellers through an online platform. The platform is like a marketplace where various sellers of a wide variety of products can list and sell their products. This is the main point of difference between online retail and e-commerce.

The difference between e-commerce and online retail is often a fuzzy line, and often retailers and e-tailers indulge into both parallelly.



FMCG (CPG) Retail industry in India


Since the case in point is JioMart, which is based upon O2O model, with major focus on CPG or FMCG, the scope of our analysis would be Online Retail and e-commerce in FMCG, while giving a fair understanding of other areas.

Retail in India is majorly unorganized (88%). This is slowly transitioning towards organized retail and e-commerce. Same is the case in FMCG. Many retailers have banked upon this trend and are well established in organized FMCG retail. Examples are – Reliance Retail, Big Bazaar (Future Group), DMart (Avenue Supermarts), Spencer Retail, More (Aditya Birla Group).

A few of these retailers have also established some form of online retail, such as, online product catalogue, app-based discounts, online ordering and in-store pickup. These have been well-received by consumers primarily in the urban regions.

Another category of retailers, or rather say e-tailers have focussed on e-commerce. Two big examples are Amazon and Flipkart (now owned by Walmart). Some of the other players include Alibaba-backed BigBasket, Tencent-funded Udaan (B2B) and Paytm Mall.

Ideally and theoretically, with growing urbanization and youth population, there is a huge opportunity in Organized Retail and e-commerce, that is, 88% which is currently unorganized can be shifted to the other two.

Practically, in a diverse country like India, the population is divided into rural, semi-urban and urban, and it can be ascertained firmly that the entire population would not become urban in the foreseeable future. Thus, each FMCG format will stay, of course share of pie moving, though slow, away from unorganized retail.

This implies that there exists enough opportunity in each FMCG/CPG retail format. Therefore, retailers are largely trying to become multichannel and then omni-channel rather than just being traditional, modern, online or e-commerce.


Exhibit 1 shows a snapshot of Indian FMCG Retail industry attractiveness depicted through the Porter’s 5 forces framework. This is from the perspective of a firm within the industry.


Inference from Porter’s 5 forces analysis:

  • A retailer in organized format is less worried about potential entrant endangering its position and market share

  • A retailer in organized or e-commerce format would face less intense competition as compared to that of unorganised format

  • It can and should look towards multi-channel (online/e-commerce) to expand and meet changing customer purchase behaviour

  • A retailer in organized format enjoys more freedom than both e-commerce and unorganized formats in product mix and pricing. By providing superior customer in-store experience, competitive pricing and ample product mix it can win customer loyalty easily. But that would mean higher investment and lower margins to some extent

  • Organized retailers usually enjoy economies of scale. Large orders mean higher bargaining power as a purchaser than the distributors or wholesalers

  • Organized and e-commerce retail have the potential to substitute for unorganized retail due to:

    • Urbanization – By 2030 40% of Indians will be urban residents

    • Rural consumption - By 2030, rural per capita consumption will grow 4.3 times

    • Online Spending - By 2026, the number of online shoppers is projected to increase from the current 15% to 50% of the total online population

    • Internet penetration – Likely to be 55% by 2025 (around 850 million)

    • Attitudinal Shifts – By 2030, 370 million Generation Z consumers, between the ages of 0-25 will have grown up in an India with internet, smartphones and digital media

The above points indicate that opportunity lies ahead for online retail and e-commerce.

One way is to expand from existing organized format to online and e-commerce presence.

Another way is to be an e-commerce player connecting the unorganized format with end customers.


Competitive Lifecycle Analysis – Retail Industry


It is projected that by 2021, 75% of the retail sector in India would be unorganised (currently 88%), 18% organised (currently 9%) and 7% e-commerce (currently 3%).

E-commerce as a whole currently occupies a very low share of the retail industry and can be said to be in “Annealing” phase. A few different business models have emerged and being used by various companies.

Within e-commerce there are several established players, a few having considerable market shares – Grofers, BigBasket, Amazon and Flipkart. The industry can be referred to be in “Growth” phase, with intense competition.


With increasing internet penetration, online spending and urbanization, the impetus for growth in online and e-commerce retail formats is tremendous. This is equally true for the FMCG online retail as well, that is the prime focus of JioMart currently. Table below shows the market size and estimations.


Below is the graphical representation of the Competitive Lifecycle of the e-commerce FMCG industry. It is still in the growth phase and there exist a lot of scope before it hits peak and starts falling down to form the S-curve.


Highlights of Foreign Direct Investments (FDI) regulations in e-commerce: India


The Confederation of All India Traders (CAIT) has often complained about predatory pricing and discounts, along with other violations of the FDI policy by e-commerce players, mainly Amazon and Flipkart (Walmart has 77% stake). This, coupled with support from Swadeshi Jagran Manch (SJM) and petitions filed by All India Online Vendors Association (AIOVA), led to strict implementation of certain rules for e-commerce firms that have foreign investments:

  • 100% FDI is allowed in marketplace model of e-commerce which means a platform to connect buyers and sellers

  • FDI is not allowed in inventory driven model of e-commerce which means that the firm cannot sell goods and services owned by it directly to customers. It should pass through retailers to customers

  • Furthermore, it restricts a retailer from buying more than 25% of inventory from the e-commerce firm. If it does, the inventory will be seen as controlled by the e-commerce firm, which is not allowed

  • e-commerce firms cannot push merchants to sell any product exclusively on its platform. The sellers can, however, choose to have a preferred online partner

  • The rules now bar any entity, in which an e-commerce firm or its group companies have a stake, from selling on the online platform

In February 2019, India proposed that e-commerce firms have to store data locally within the country. This implies more data centres and server farms needs to be established, boosting Indian e-retailers and high-tech companies at the expense of foreign competitors, who would see their costs rise.


Capability Analysis – JioMart


Serving the food and grocery category Reliance Retail operates Reliance Fresh, Reliance Smart and Reliance Market stores. Other categories include consumer electronics and fashion & lifestyle which are not in scope of this analysis.

Reliance Fresh and Reliance Smart are organized retail stores which constitute 621 stores across the country.

Reliance Market is the wholesale cash and carry store chain. It operates 52 stores serving over 4 million-member partners (kirana stores) out of 15 million kirana stores.

JioMart can leverage the capabilities of existing retail business in a variety of ways.

At the core of JioMart’s strategy is to woo middle-class families through its idea of unbundling, and in the process, change purchasing habits. Incentivise smaller, but more frequent purchases with discounts and coupons, while keeping product value intact.


Exhibit 2 shows a snapshot of the capabilities of JioMart that could be leveraged to deliver to the promise made.


Competitor Analysis – JioMart

Competitive Position – JioMart


From the company’s objective to provide products at discounted prices through the kirana stores all over the country, it can be inferred that it is eyeing to be a Cost Leader.

There are existing major players – BigBasket and Grofers in the groceries space and Amazon and Flipkart in FMCG space including a small portion of groceries and growing.


Inference from Competitors analysis:

  • JioMart is at the stepping stone of market share. Both online groceries and FMCG e-commerce are dominated by existing players

  • Financially JioMart is at a superior position given the investments in Jio Platforms and the performance of Reliance Retail

  • FDI regulations on e-commerce would benefit JioMart because most of the competitors will face restrictions due to foreign investments, whereas JioMart would not. It is to be noted that the investment benefit that JioMart will get is from investments done in Jio Platforms and not directly in JioMart

  • All the competitors have huge customer base already. Many have loyal customers registered through subscriptions such as Amazon Prime, service such as same day delivery. Even though in losses, they are aggressively utilizing the funding to expand their reach

Stakeholder Analysis – JioMart


Stakeholder analysis identifies and analyses stakeholders' interests in order to develop strategic actions that fulfil those needs.

The key stakeholders for JioMart can be identified as:

  • Suppliers of JioMart from where it procures goods

  • Customers

  • Community in which JioMart operates – the locality in which the stores, warehouses are situated

  • Shareholders who invest in Reliance Industries

The secondary stakeholders for JioMart can be identified as:

  • Competitors of JioMart that are in the FMCG e-commerce space

  • Government of India that regulates the e-commerce operation in the country

  • Confederation of All India Traders (CAIT) that looks after the interest of small and medium traders and ensures fair trade practices

Below table shows the “Stakeholders Issue Matrix” which helps us understand the relative importance of each issue to different stakeholders (1 -- Critical importance to stakeholders, 2 -- Somewhat important to stakeholder, 3 -- Not very important for the stakeholder).

From the above table we can observe that:

Based on the above two tables there can be different ways to prioritise and create an action plan that would create values for all the stakeholders:


Option - 1:

Based on the rank, create an action plan that caters to each issue in the order (1 -- highest priority, 4 -- Lowest priority). This does not mean that it has to be in this way. If resources, funds and capabilities are sufficient, all the issues should be taken care parallelly.


Option - 2:

Based on the value proposition of the company, identify the issue which relates the most to it. For that particular issue, select the stakeholder to whom it is most critical, and create an action plan to resolve it. Similarly, for other issues. Again, this is not the only way to proceed; if resources, funds and capabilities are sufficient, all the issues should be taken care parallelly.

Below table shows the “Stakeholders Impact Matrix” which shows the action taken or potential action that should be taken by JioMart on various issues to ensure value creation for the stakeholders. It provides a framework of the strategic choices that can be implemented.

Diversification - JioMart


JioMart is currently placing its bet on FMCG e-commerce and online-to-offline model. It is in a moderately strong position with respect to existing competitors. Whereas the parent firm Reliance Retail operates in multiple categories – FMCG, Consumer Electronics & Fashion and Lifestyle through various retail formats. Thus, JioMart can leverage these existing capabilities to diversify in related markets, that is, e-commerce format for the above-mentioned categories.


Online sales of consumer electronics including mobile phones and laptops has become quite prevalent and increasing. E-commerce companies such as Amazon and Flipkart are leading in this category. Reliance Retail has the advantage of catering to consumer electronics market through its over 8,000 Reliance Digital and Jio stores. This provides JioMart both operational and strategic advantage and opportunity to diversify into this category as well.


Given below is the “Diversification Matrix” that represents the above fact.


Closing Remarks


JioMart has the strength of:

  • Strong financial position of Reliance Retail

  • Widespread presence of Reliance Retail

  • Easy access to mobile users through WhatsApp and Facebook

  • Huge investments in Jio Platforms

JioMart lacks:

  • Customer base and market presence

  • Due to the nature of industry, no product differentiation

Challenges ahead:

  • Provide products at lower cost than that of competitors

  • Provide quick last mile delivery, at least matching to the level of competitors in each region

  • Establishing uniform service level across the supply chain which will consist of numerous kirana stores that is external to the organization

  • Establish a synergy between e-commerce platform and WhatsApp payments that will be adopted and preferred by the customers

With growth opportunity abundant in FMCG e-commerce it is likely that JioMart would face a moderate level of competition. If it plays to its strength and focus on resolving each challenge, it will probably gain considerable market share and cost leader position.


References


Retail industry


Reliance and JioMart


FDI Norms



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