Reliance Future Deal To Get An Edge On FMCG Space
According to industry experts, Reliance Retail is looking for tough bargains for online shopping, along with fast-moving consumer goods (FMCG) companies, as well as brick and mortar stores, backed by investor funding, and the acquisitions from Future Group.
Reliance Industries Ltd retail arm is also expected to focus aggressively on its private brands, the analysts said. The deal by the Future Group has given Reliance a 27 percent share of India’s integrated retail grocery market worth around $544 billion.
This could alter ways in which the Mukesh Ambani-owned company will negotiate trade terms with FMCG firms as its influence over modern trade outlets, Kirana stores, and e-commerce channels, will grow multifold.
The combined network of Reliance Retail and Future Group’s retail business could contribute as much as 8-10% of sales revenue for the top FMCG players, making Reliance Retail their largest customer based on FY20 revenues, according to estimates by financial services company Jefferies.
Jefferies analysts said in a recent report that the acquisition of Future Group by Reliance Retail consolidates consolidated grocery retail but is becoming a concern for the FMCG market. The broad scale to be enjoyed by Reliance Retail will increase its negotiating power with FMCG companies, general merchandise vendors, and logistics partners, the brokerage said.
Smaller businesses have said they are already expecting a situation where they could be forced to dole deals. A mid-size FMCG company founder on condition of anonymity said he foresees some sort of monopoly approach and more industry and brands will have to fight to get the right goals or volumes from them, or else they will be forced to give more deals, schemes, or discounts.
He said Reliance Retail will run approximately 2,000 grocery stores with the formats of the Future Group, including Big Bazaar, Heritage, Easy day, and Nilgiris, as well as its retail formats such as Reliance New, Reliance Smart, and the Reliance Market.
This will give the company a $5.5 billion combined grocery market, CLSA analysts said in a recent report. There’s also its newly launched Jio Mart e-commerce website, which connects various businesses with customers and gives them inroads into the general commercial market.
Some analysts point to the change in dynamics between FMCG firms and Reliance Retail, while others said large multinationals will not be easy to roll over. According to Rajeev Krishnan, former MD, and CEO Spar Hypermarket, Reliance is hard negotiators and will look to maximize this opportunity of scale.
He doesn’t think one can just roll over successful and popular consumer companies such as Hindustan Unilever Ltd, Nestle India Ltd, Godrej Consumer Products Ltd, and Marico Ltd, and leave them out of the growth strategy.
