The entry of Reliance Retail into India's lucrative online grocery market could pose some substantial challenges for Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) thanks to its ability to quickly scale up its reach. But it looks like JioMart -- Reliance Retail's online grocery venture -- is already running into challenges that come with scaling up quickly.

This could be bad news for JioMart's future in India's huge consumer discretionary space and help the American retailers bolster their already strong positions in that market.

Indian flag next to an e-commerce button on keyboard.

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Reliance Retail's online grocery business runs into initial hiccups

Reliance Retail launched JioMart with the aim of making a dent in India's online grocery market on the back of its existing infrastructure of hundreds of grocery stores spread across several Indian cities. In fact, JioMart went from a pilot project to delivering groceries across 200 Indian cities in the space of just four months.

But recent reports suggest that JioMart has run into execution challenges that range from delivery hiccups to the quality of products delivered. Twitter is abuzz with Indian consumers complaining of bad packaging, rotten vegetables, order cancellations, higher pricing, and delayed deliveries. Consumers are also complaining about a bad customer service experience.

However, these are not the only problems that JioMart is facing. Reliance has reportedly paused its ambitious project of taking orders on Facebook's WhatsApp and fulfilling them through local mom-and-pop stores due to a lack of delivery personnel. According to Indian financial daily newspaper Mint, local mom-and-pop stores have confirmed that JioMart told them that the platform won't be taking new orders for a few weeks.

Channel checks by financial services provider Jefferies indicate that JioMart may have stopped taking WhatsApp orders soon after the service went live in 200 cities. It blamed the COVID-19 outbreak for creating hiccups in the delivery and fulfillment infrastructure.

Now, Reliance Retail has an expansive network of close to 12,000 stores spread across 6,600 cities and towns in India. But it looks like the company is having a hard time creating a robust delivery infrastructure during the pandemic. That's not surprising, as the Indian government's handling of the e-commerce business in the earlier phases of the lockdown threw a spanner into the delivery mechanism of e-commerce players.

Both Amazon and Walmart suffered at the same time as warehouses remained shut and deliveries of only "essential" items were allowed. So Reliance Retail's jump onto the e-commerce bandwagon in such a short space of time was bound to run into challenges. Going by the reviews, the JioMart platform seems to be suffering from quality issues and a lack of checks and balances. This could open an opportunity for Amazon and Walmart to make their moves.

Amazon and Walmart are strengthening their grocery arms

Earlier this month, Amazon India announced that it had expanded its Pantry grocery delivery service to more than 200 cities and towns. The e-commerce giant also added that it could guarantee the lowest prices and deliveries within two days from fulfillment centers present near those cities and towns. This move from Amazon comes at a time when its Pantry service has seen a doubling in demand from tier 2 and tier 3 cities in India.

Walmart's Indian subsidiary Flipkart is also trying hard to make its presence felt in the grocery business. Its Supermart grocery business is currently operating in 26 Indian cities, but the company is trying to scale up with the help of another initiative: FarmerMart. Through FarmerMart, Flipkart aims to sell locally produced food items as well as packaged products with the help of local Indian farmers. Walmart had authorized an investment of $258 million toward this venture in October last year, but the initiative recently ran into a hiccup.

India's commerce ministry denied Flipkart a license to enter the food retail business, citing regulatory issues, though it wasn't clear on what grounds the application was rejected. However, Flipkart says that it will reapply for the license so that it can clear the regulatory hurdles. It is worth noting that Amazon had been granted permission to enter the food retail space in India back in 2017, so there is a chance that it could be given the green light if it takes care of the issues pointed out by the ministry.

In all, it can be concluded that the competition for online grocery dominance in India -- which is expected to grow to $10.5 billion in revenue in 2023 from just $1 billion in 2018, according to a third-party estimate -- is just getting started. Reliance's JioMart has come in with an ambitious model, but it is struggling to execute on the ground. Walmart is still trying to learn the ropes, while Amazon finally seems to be picking up momentum after facing initial regulatory troubles.

The victor of this market is still up in the air, but Amazon could pull ahead of its rivals as things stand.