Reliance interest in farming & food paramount

Lot unsaid in RIL petition in Punjab & Haryana High Court

Business

January 6, 2021

/ By / New Delhi

Reliance interest in farming & food paramount

Reliance Industries and Adani Group are the two firms that the farmers believe will benefit the most from the new farm laws (MIG photos)

Along with Adani group, Mukesh Ambani’s Reliance Industries has been targetted by farmers ever since they began protesting against farm laws. Though Reliance claims it has nothing to do with farm laws, it stands to gain the most from these.

In the eye of the unprecedented storm over the new farm laws rammed through Parliament by the government in September, Mukesh Ambani’s Reliance Industries has tried to take inspiration from Mahabharata’s Yudhishthir in a statement as well as the petition its subsidiary Reliance Jio Infocomm has filed before the Punjab & Haryana High Court.

Reliance claimed in its statement that the company would always support the Indian farmers’ demand for a ‘fair and profitable price on a predictable basis’ for their produce, and that the company had no plans to enter corporate on contract farming, now or in the future. “Neither Reliance nor any of our subsidiaries has purchased any agricultural land, directly or indirectly, in Punjab/Haryana or anywhere else in India, for the purpose of “corporate” or “contract” farming. We have absolutely no plans to do so,” the company said in a statement.

Reliance Industries and Adani Group, led by Gautam Adani, are the two firms that the farmers believe will benefit the most from the new farm laws. While the Adani Group is already present in food business, Reliance has not yet directly ventured into the sector. However, it has been getting closer to the foods business over the past few years, notably with the entry of Reliance into the gigantic Indian retail market, initially with Reliance Trends and then rapidly into food with Reliance Fresh. The company has been steadily increasing its footprint with both the brands nationwide.

To add serious muscle power in the USD 1.1 trillion retail industry, in August 2020, Reliance decided to buy the beleaguered Future Group’s retail business for INR 247 billion, giving it immediate access to over 1800 stores of Future Retail, such as Big Bazaar, Foodhall, EasyDay and Nilgiris, all of which depend primarily on food as the mainstay of their revenues.

The deal also involves Reliance taking over Future’s logistics and warehouse. Though the acquisition has run into legal challenge from Amazon, which had already an agreement with Future Group over the retail business, the deal signalled Reliance’s keen interest in the food and grocery business loud and clear. Food is also the single biggest component of an Indian household, with nearly 28 pc of the total expenditure devoted to food. With rising disposable income, this share is only expected to increase.

For anyone who still had doubts about the Ambani group’s plans for food business, one look at Jio Platforms, the e-commerce platform that the company has mounted, should be enough to dispel any lingering questions about the place that food business had in Reliance Group’s future strategy.

Ambani has been aggressively raising finance for Jio Platforms, as he prepares for a mega battle with global retail behemoths Amazon and Walmart. Ambani has already raised USD 20 billion for Jio Platforms through a range of big-ticket investors while now he is busy with raising close to USD 6 billion for Reliance Retail.

Late last year, Ambani’s e-commerce venture JioMart had begun operations, and during the lockdown, it scaled its presence to 200 cities and at its peak, clocked 400,000 orders in a day. Most analysts predict that the company will continue to grow at a breakneck speed and analysts are predicting a hefty market-share for the company. A report by investment bank Goldman Sachs says that JioMart is poised to sell half of all online grocery in India, which is expected to see five million orders every day by 2024. “Having said that, we do see grocery as a large category for two or more players to co-exist over time,” Goldman Sachs said in the report. As of 2019, Bigbasket and Grofers accounted for more than 80 pc of the online grocery market, the report added.

Online grocery as a segment has been witnessing major growth and has reported over 50 pc on-year growth for the last couple of years. However, coronavirus, coupled with RIL’s entry in the segment is expected to give a further push to online grocery sales. It is likely that during 2019-24, online grocery sales will report 81 pc CAGR. Meanwhile, e-commerce in general is also expected to boom by 2024 thanks to factors such as better penetration into categories such as grocery/FMCG, improving payment ecosystem and ease of shopping through digital apps like WhatsApp.

And this gives it an edge over others – its presence across India and offline-to-online approach by partnering with kirana stores. India’s kirana retail network of millions of stores remains the primary source of sales for grocery across the country. It has also become the object of fascination for the likes of Amazon, Flipkart. “India has 10 million grocery stores, which account for 90 pc of grocery retail. JioMart has already launched in more than 200 cities, leveraging Reliance Retail’s store network, with kirana partnerships across 20 cities,” said the Goldman Sachs report. Barely a year old in the industry, JioMart is riding on Reliance’s power and presence across the country, it says.

Despite its protestations and claims, food would remain central to Ambani’s plans in the near and long-term future. As most retailers, including global giants like Walmart, Tesco or Carrefour have their own brands selling food and other items, it is inevitable that Reliance Industry would follow suit. Already, Future Retail has a large presence in its own-brand food sold through its outlets.

It would be extremely difficult to believe that a savvy businessman like Ambani would shut the door on such a cash cow and not deal in food, either under Reliance brand or selling other food brands. Either way, the future of Reliance in e-commerce and retail would be very closely linked to food, despite what it may claim today.

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