Amazon (AMZN -0.17%) and Walmart (WMT 0.83%) have been trying hard to crack the Indian e-commerce market for quite some time now. The American giants have been deploying a host of initiatives to bring more consumers into the fold there -- such as recruiting local mom-and-pop stores to act as agents.

These mom-and-pop stores are supposed to handle last-mile delivery of various types of goods for Amazon and Walmart. But now, it looks like both companies could be beaten at this game by a local player. Reliance Retail -- which recently started testing its e-commerce platform, JioMart, in India -- has decided to keep these local mom-and-pop stores (known as Kirana stores in India) at the center of its e-commerce strategy.

Indian flag painted as a keyboard button along with the word e-commerce.

Image source: Getty Images.

Sleepless nights for Amazon and Walmart

Reliance Retail has moved quickly to put its plan in motion. Within 45 days of announcing its e-commerce initiative, it had deployed 18 new grocery stores to support the strategy. Reliance says that the new stores are part of a small-store format known as Smart Point.

These Smart Point stores are a smaller version of the bigger Reliance Smart stores, which are usually located away from residential neighborhoods. Reliance is now making a smart move by opening the smaller Smart Point stores closer to where people live.

Credit Suisse points out that the new Smart Point stores take up just 1,500 square feet to 2,000 square feet of space. They resemble small self-service neighborhood stores and carry different categories such as vegetables, fresh fruits, food items, personal care items, and other household products.

These Smart Point stores are also expected to sell electronics and fashion items through Reliance Digital and Ajio kiosks -- the company's electronics and fashion and lifestyle divisions, respectively -- according to Credit Suisse. In addition, the Smart Point stores will fulfill orders placed on Reliance's JioMart e-commerce platform.

More specifically, the new stores will have a separate area that will be used only for fulfilling orders placed by consumers using the JioMart app. Consumers using the JioMart app can place their orders online and choose to have the goods delivered through a Reliance Smart Point store or through a local mom-and-pop kirana store recruited by the company.

Reliance had announced earlier that it plans to connect 200 million Indian households with 30 million offline retailers. Attaining that scale is only possible with the help of local mom-and-pop stores, which numbered over 15 million a year ago. Reliance is looking to tap into those stores with the help of JioMart.

During the pilot phase, Reliance invited owners of neighborhood stores to register on its platform. The company is providing technology to the local shopkeepers that will help them order items from a nearby Reliance cash-and-carry store, using an app. Reliance will also help the mom-and-pop stores accept digital payments by providing them with merchant point-of-sale machines.

Finally, the fact that Reliance had 154 Smart stores across 96 cities at the end of March 2019 means that it can quickly expand the smaller Smart Point stores into more areas.

Amazon has tricks up its sleeve, but Walmart may be in trouble

Both Amazon and Walmart have been trying to recruit local mom-and-pop stores to boost their networks in India. Walmart, for instance, has been running a dedicated program for local shopkeepers for nearly two years now. What's more, there are a lot of similarities in strategy between Reliance and Walmart with respect to mom-and-pop stores in India.

Walmart aims to digitize the local stores and supply them with products from its fulfillment centers and warehouses. But Walmart seems to have taken a step back in India. The company recently laid off a part of its management team in India and also announced that it will close its largest warehouse in the country's financial capital of Mumbai. Pulling back in India at a time when a new threat has emerged is not a good move, as this could ease Reliance's path towards market share gains.

Amazon, on the other hand, is in overdrive mode as far as recruiting local mom-and-pop stores is concerned. Last August, the company said that it had partnered with more than 20,000 small stores across 350 cities to boost last-mile delivery. Amazon has reportedly been using these stores to deliver orders placed on its e-commerce platform. It is also enlisting these local stores to sell goods through its e-commerce platform.

The company recently announced that it is on track to invest $1 billion in the Indian market to digitize small and medium businesses. Amazon has also been working to expand its physical footprint in India through stakes in local supermarket and hypermarket chains. So, both Amazon and Walmart have already been doing what Reliance is trying now. But the latter has a couple of advantages over the two American giants.

First, Reliance's retail footprint is quite sizable and is spread across the country. Including all its different brands, Reliance Retail operates nearly 11,000 stores in India. These stores are spread across more than 6,700 cities and a retail area of 24.5 million square feet. This expansive offline infrastructure will help Reliance quickly scale up its e-commerce venture.

Reliance is also able to offer discounts. The Smart Point stores promise a minimum discount of 7% on all products. Earlier, JioMart was offering a coupon worth 3,000 rupees (around $42) to customers if they pre-registered to use the platform.

Amazon and Walmart have previously been called out by the Indian government for offering deep discounts. But Reliance might not be subject to such scrutiny, as it does not have to follow the foreign direct investment (FDI) rules applicable to foreign players like Walmart and Amazon.

The scales in India may be tipping in favor of Reliance Retail. This is bad news for Amazon and Walmart, which have had a relatively free hand in India's fast-growing online consumer discretionary space thus far.