Why Amazon and Alibaba are courting Birla owned More and Reliance Retail

Offline retailers owned by large corporate groups are having a ball as Amazon and Alibaba are planning to buy stakes in More and Reliance Retail respectively. Media reports reveal that Amazon is joining Samara Capital and Goldman Sachs to buy the Aditya Birla owned grocery chain while Alibaba is in talks with country’s largest retailer Reliance Retail for picking up ownership up to 49 per cent.

Global Internet companies queuing up for buying stakes in offline retailers isn’t a surprising move. It was bound to happen as grocery eventually will become next frontier of battle for e-commerce companies in India. Besides giving them upperhand in grocery, offline retailers will also fill the existing crack in supply chain across categories.

Instead of getting into nitty gritty of probable deals. Let’s analyse, why Amazon and Alibaba are keen on offline retail in India and how it fits in their long term strategies.

Based on learnings over the years, online retailers have realised that they can’t scale and thrive without strong support of brick & mortar format. Several pure-play online players including Pepperfry, Amazon, Myntra and others have already began tapping into offline initiatives.

While building infrastructure for offline retail isn’t in DNA of Amazon and Alibaba, they can only do it via buying stakes in to existing set ups.

Given that scale in other categories (smartphone, electronics, apparels etc.) isn’t going to explode as would suit their aspirations, grocery along with fresh produce and FMCG verticals would drive the growth of Amazon and Alibaba.

Unlike other categories that can be fulfilled through warehouses, grocery requires  hyperlocal approach. Since More has 613 stores and Reliance Retail that operates with half a dozen subsidiaries has over 3,700 stores, they can give ready made wings for opening grocery and other essentials in almost no time.

Over the past two years, Amazon has been trying to do grocery on its own via standalone app Amazon Now; and Pantry section on its horizontal platform. However, it didn’t get much success owing to challenges in supply chain.

More would help Amazon to overcome existing challenges in e-grocery.

On the other hand, Alibaba has dependent on Paytm Mall for e-commerce in India. Despite giving financial and operational backing, it hasn’t found stable ground. With about 60-80 thousands orders everyday, it’s no where close to the volume of Amazon and Flipkart orders.

Gradually, Alibaba has realised that its e-commerce ambition can’t be executed by Paytm Mall. And, it would be left behind in the fray without support of large and powerful group. Jack Ma sees a formidable partner in Mukesh Ambani.

The proximity between Reliance and Alibaba, with a probable deal in future, is not a good news for Paytm Mall, as the focus of Alibaba would shift from providing financial as well as Chinese-product facilitation  to the latter for its e-retail business. Anyway, the O2O segment, which Paytm Mall has been trying to crack, hasn’t shown aspired results for Alibaba.

If the consortium gets through the deal, Amazon would execute things on its own as Aditya Birla is completely exiting from the company. However, things won’t be same for Alibaba if it would decide to form joint venture with Reliance. Ambani-led group typically keeps major ownership in any JV with itself as it prefers maintaining control.