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  • Writer's pictureMuzammil Hussain

Growth Strategy Analysis for an e-commerce firm

Updated: Sep 24, 2020

At some point through their lifecycles, most businesses consider growing. There are multiple questions to consider - Why, How, and How much to grow. Through this article, I have tried to portray an analysis of the growth strategy of an Indian e-commerce firm - Reliance JioMart


You might want to visit my earlier article on "Competitive Positioning Analysis for an e-commerce firm" prior to reading this article. Growth strategy is the next step after assessing the competitive position of a firm.


Firm in consideration


JioMart – It is the e-commerce venture of Reliance Retail, a subsidiary of Reliance Industries Limited (RIL), India. JioMart works on the online-to-offline (O2O) business model which means that the customers can buy products directly through the app from nearby sellers.

Reliance Retail is the largest retailer in India in terms of revenue. Reliance Retail is well-established in India through its organized retail format. Through JioMart, it has entered the e-commerce format.

Technology support is provided by Jio Platforms which is a next-generation technology platform focused on providing high-quality and affordable digital services across India, with more than 388 million subscribers. RIL has raised over $15 billion dollars from 11 investments in two months through selling stakes (almost 25%) in Jio Platforms. This includes Facebook as the largest stakeholder. Together with investments received and rights issues, RIL has become Net Debt-free much before the estimated date of 31st March 2021.


Current Growth Strategy


JioMart aims to leverage the opportunities in the e-commerce industry which now accounts for a very low share (3%) of India’s retail sector, but is expected to grow substantially.

JioMart’s growth strategy is to first utilize the capabilities of Reliance Retail and establish itself in grocery e-commerce. In this sector it faces competition from many players; Grofers and BigBasket being the prominent ones with more than 70% of the online grocery retail market share. Thereafter, JioMart would expand into other offerings such as consumer electronics, apparel, and CPG, thus, competing head-on with Amazon and Flipkart.


Growth Strategy analysis


Key Trends


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

  • Urbanization: By 2030, 40% of Indians would be urban residents

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

  • Rural consumption: By 2030, rural per capita consumption would 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

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

Key Uncertainties


The trends mentioned above are for normal geological, political, social, and economic environments. But it is very interesting to note that factors such as Rural Consumption and Online Spending might be quite uncertain if the environment changes, for example, the COVID-19 scenario currently prevalent. During such a situation, when social distancing is the norm, brick and mortar retail takes a hit, whereas online retail and e-commerce see an upsurge in demand for essential items. This is an example. There can be varied responses from the market in different situations.

Thus, considering these key uncertainties over the period between the next 5 and 10 years, scenario analysis and planning gain importance to identify the optimal strategy that is robust across scenarios.

The main questions for JioMart (considering growth) can be –

  1. Whether to Scale or Diversify?

  2. Whether to focus on rural areas or on urban areas?

The below matrix shows different scenarios based on the uncertainties, and possible actions that can be taken are explained:

Scenario A


If there is no change in online spending in spite of an increase in rural consumption it indicates that rural consumers prefer offline mode to online retail or e-commerce. This may be due to various factors, namely – lack of interest of consumers, infrastructure issues such as non-availability of the internet, poor supply channels, lack of information, and awareness about e-commerce.

In such a situation, JioMart can:

  • First focus on Scaling online groceries business in the urban areas where consumers are aware, demand is available and infrastructure issues do not exist

  • Then Diversify into other FMCG categories such as electronics, prioritizing urban regions with highest demands

  • Parallelly the company can select certain rural areas and research to find the cause of no online spending increase. This can possibly help to eradicate the cause and capture that market

Scenario B


This can occur in the situation of an economic crisis in which income levels are either stagnant or decreasing. This is the worst situation to be in because neither there is the scope of growth in the new rural markets nor there is growth in the established urban markets.

In such a situation, JioMart can:

  • Focus on improving the efficiency of existing business processes that might help in cost reduction and improved margins. Scaling would not be a good option as it would incur costs in a stagnant market

  • Carefully Diversify into such categories that are essential and not luxurious, for example, home need products

Scenario C


This is the most favorable scenario in which both rural consumption and online spending are increasing. It indicates a high potential for growth. Since groceries and FMCG are generally low involvement essential items, a first-mover advantage can help in gaining market share.

In such a situation, JioMart can:

  • Aggressively Scale FMCG business to capture all the hot markets of rural areas

  • Parallelly Diversify into other categories in urban areas, later extending to rural areas as well

Scenario D


When online spending increases without any growth in rural consumption, it indicates increasing demand from urban areas. In such a situation, JioMart can:

  • Aggressively Scale online groceries business to capture all the hot markets of the urban area

  • Diversify into other categories, especially consumer electronics as for these products consumers have relatively low demand for touch and feel than that for apparel or footwear

Competitor Analysis: Game Theory and Payoff Matrices


JioMart is positioned against competitors as below:

BigBasket and Grofers have spent extensively in building the capability of hyperlocal delivery and online-to-offline model respectively.


BigBasket: Almost 50% of the online grocery retail in India. Market leader in this segment

Grofers: Almost 25% of the online grocery retail in India

JioMart has entered into online grocery market. The point of the analysis is whether to scale into rural areas in addition to the urban regions or not. The below Payoff matrix can help visualize the alternatives:

The current market situation is the top-right cell. Competitors already occupy a large share of online groceries with a mix of FMCG products. JioMart’s entry has the potential to reduce their market share while it gains, thus reducing their payoff from (+ + +) to (+ +). The natural tendency of the competitors would be to either start a price-war or shift to tap opportunities to scale in rural areas (top-left cell). This would eventually (or probably being planned) lead JioMart also to scale in rural areas (bottom-left cell). In this situation, both JioMart and the competitors would be better off as the available market itself would expand and there would be a lot of scope for growth.

Amazon and Flipkart are the big e-commerce players commanding a large chunk of market share in FMCG, consumer electronics, and apparel.


Amazon: 30% of the Indian e-commerce market (includes grocery and other products). Online Grocery market share is less than 9%

Flipkart: 60% of the Indian e-commerce market (includes grocery and other products). Online Grocery market share is less than 9%

If JioMart plans to expand into other categories such as consumer electronics, mobile phones, and apparel, the above two are the biggest competitors. The point of the analysis is whether to Enter or not into these categories. The below Payoff matrix can help visualize the alternatives:

The current market situation is the bottom-right cell. Competitors already occupy a large share of the e-commerce market (almost 90%). Though the potential market share appears to be 10%, given the potential of e-commerce growth, JioMart may want to enter this market. If it does, it has to do so on a large scale with very efficient and comparable service to those of the competitors. Any slack on this part might be harmful to the brand image and might lead to customer ignorance. If JioMart enters, it has the potential to reduce competitors’ market share while it gains, thus changing their payoff from (+ + +) to (+ +). Thereafter, it would be a matter of competitive pricing, services (availability of varied product categories and brands, delivery, customer complaints handling, etc).

The other two possibilities are not likely to happen, as the competitors are already established and there is very little chance of them leaving the market.


Synthesis of Findings


From Scenario Analysis and Pay-off Matrices, it can be inferred that:

  • Scaling the existing online groceries business, into rural areas also in a favourable situation, is a robust strategy

  • Thereafter, diversifying into other FMCG categories should be considered to gain market share and grow

With these points in focus, JioMart has roped in huge investments from multiple firms, which is strategic in nature.


Acquisition Analysis


JioMart has followed the path of Strategic Alliance as is visible with respect to Facebook’s investment of 5.7 billion USD for a 9.9% stake. It would provide the technology infrastructure (Facebook and WhatsApp) needed to scale efficiently and quickly. Moreover, these investments to the tune of 15.45 billion USD by multiple entities have helped Reliance to become net debt-free.

JioMart has also followed the path of Acquisition in the upcoming deal between its parent company RIL and Future Group in which RIL would acquire fashion and grocery retail formats from Future Group’s listed entities such as Big Bazaar, FoodHall, Nilgiris, FBB, Central, Heritage Foods and Brand Factory. This would help JioMart expand its market reach as well as Reliance Retail to expand its physical stores.


Closing Remarks


JioMart has the strength of:

  • The strong financial position of Reliance Retail

  • The widespread presence of Reliance Retail

  • Easy access to mobile users through WhatsApp and Facebook

  • Huge investments and strategic alliances in Jio Platforms

Within 4 months after its launch in May 2020, JioMart recently crossed the 400,000 daily order mark. Its plan to establish hyperlocal delivery through local Kirana stores pan-India has mobilized competitors to take initiatives in this direction, for example, Flipkart’s 90-minutes Quick to Deliver service for groceries and home accessories. It would be interesting to see how this competition pans out, how the market share shuffles among competitors, and most importantly how consumers benefit from this.

 

References


Retail industry


Reliance and JioMart


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