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At the annual general meeting of Reliance Industries earlier this week, Isha Ambani, director at Reliance Retail Ventures, announced that the company is foraying into the fast-moving consumer goods (FMCG) space.
But analysts say that only time will tell if this will lead to a disruption in India’s FMCG market.
While Reliance Retail’s initial strategy is to take its own brands, which it currently sells at its own supermarkets and hypermarkets, to general trade, it is also looking at acquisitions.
The company has just acquired aerated drinks brand, Campa, from Pure Drinks for Rs 22 crore.
According to a source, it is keen to make more such acquisitions and is also looking at regional brands.
Reliance plans to sell products in the food, home care and personal care categories in the FMCG space.
The country’s largest retailer is also interested in targeting the mass market. Hence, most of its advertising and promotion spends will be aimed at getting consumers from the Tier 2 and Tier 3 markets into its fold.
Analysts say that Reliance’s move could turn out to be the next big disruption in the FMCG market after Patanjali Ayurved made its aggressive entry into it in 2015.
Patanjali had managed to make its presence felt almost immediately, making other FMCG companies launch their own ayurvedic and natural products.
“Historically, not all who have tried to enter the FMCG market have succeeded.
"But the acquisition strategy will work for them (Reliance Retail),” Vishal Gutka, vice-president of research (consumer and retail sector) at Phillip Capital India, told Business Standard.
Plan of action
Gutka said that other FMCG companies will have to increase their ad spends in segments where Reliance makes a meaningful acquisition in order to stay competitive.
But he added that only time will tell if Reliance becomes the next big disruptor after Patanjali to hit the Indian FMCG market.
Sachin Bobade, VP at Dolat Capital, too, believes that Reliance could be the next disruptor in the FMCG market.
“Patanjali was the latest disruption which hit the market in 2015. This is possibly the next disruption,” he said.
Experts agree that Reliance Retail’s own distribution network will be useful in pushing its FMCG brands into the market.
“Because of its own distribution through JioMart, it has consumer information, making it easier for it to launch its products and gauge the demand for these products,” Bobade said.
He added, however, that since the FMCG industry is driven by brands, it will take some time for Reliance to establish its own brands in the market.
Reliance Retail has already begun onboarding super-stockists and distributors.
A super-stockist who has been recently onboarded in the western region said that as of now, no targets have been set, but these would kick-in next month.
He added that the company’s supply chain is still in the process of being set up.
The company is also incentivising its super-stockists with double the margins offered by other FMCG companies.
It is giving them margins at six per cent, as compared to the 2.95 per cent to 3 per cent offered by others.
Rajat Wahi, partner at Deloitte India, said that large FMCG companies with strong market coverage have between 2,000 to 3,000 distributors, sub-distributors and upcountry distributors.
But this takes time to build up.
In addition, having a strong retail network in urban and rural markets can be a major advantage to service markets and kiranas.
“The acquisition of brands and building one’s own private labels are a great way to further build distribution and cause disruption in the FMCG and retail market,” Wahi said.
