Reliance Retail's JioMart online grocery platform arrived in India with a bang last year. The new service quickly lapped up new subscribers and saw a sharp spike in daily orders in the space of just a few months, indicating that it would pose a significant challenge to Amazon's (AMZN 0.73%) ambition of dominating India's online grocery market.
It now appears that JioMart has already made a big dent and is close on Amazon's heels in online groceries. Let's look at the recent developments that make JioMart a big headache for Amazon in India.
JioMart is getting noticed in India's online grocery market
JioMart reportedly controls 20% of the online grocery market in the south Indian city of Bengaluru, the site of Amazon's India development center where the e-commerce giant is planning significant expansion. The deep pockets of India's richest man and a partnership with Facebook giving it access to the widely used WhatsApp messaging service have played an important part in this ascension.
JioMart is also close on the heels of market leader Big Basket. According to BofA Global Research, the Reliance-owned company reportedly has a DAU/MAU ratio (daily active users to monthly active users) of 16% that's just behind Big Basket's 17%. This ratio is an indicator of customer retention. JioMart has reached that level within a year of launching, while Big Basket has been in business for nearly a decade.
Brokerage firm Kotak Institutional Securities recently conducted a survey of 100 grocery retailers partnering with JioMart in Bengaluru. It found that the new upstart is offering lower prices and a bigger share of the distribution margins as compared to Amazon. The local grocery retailers are directly fulfilling orders placed on the JioMart platform. The company is not supplying goods to the local retailers, which allows it to cut down on delivery and storage costs and pass on the benefits to distributors.
As a result, distributors are reportedly stocking more of Reliance's private-label offerings as compared to Amazon. In Mumbai, India's financial capital, 37% of distributors were stocking Reliance's private-label offerings in December last year, as compared to just 13% from Amazon and others.
Reliance Retail is following an aggressive distribution strategy to boost JioMart's market share. More importantly, the strategy seems to be working, as supply chain checks conducted by JPMorgan analysts indicate that there has been an increase in order sizes at JioMart. The company has upgraded its delivery infrastructure to include more vans instead of motorcycles, pointing toward an increase in volumes.
JPMorgan estimates that JioMart's current delivery infrastructure can help it support annual gross merchandise value (GMV) of $8 billion to $11 billion in online groceries. So, JioMart is in a solid position to take advantage of India's booming online grocery market that's expected to hit $18 billion in GMV by 2024 from $3 billion last year, according to RedSeer Consulting's estimates.
Don't be surprised to see JioMart corner a nice portion of that market in the long run. Its parent, Reliance Retail, has a terrific offline presence in the country with 3,500 retail stores and 8,000 Jio Points (small stores). Jefferies estimates that the company's offline business could clock an annual growth rate of 16% for the next five years.
This strong offline growth is expected to rub off positively on the JioMart business, with Jefferies estimating that Reliance Retail could corner 13% to 14% of the e-commerce market in India by 2025. Goldman Sachs analysts had earlier estimated that JioMart could end up capturing half of India's online grocery space by 2025.
Amazon is well prepared for the fight
JioMart's rise doesn't bode well for Amazon, but the American giant has been taking concrete steps to boost its presence.
Amazon has seen a sharp spike in buying activity from smaller Indian cities, which are an important growth frontier in India's e-commerce landscape. Additionally, the company has expanded its network of local stores to 450 cities and 50,000 sellers in the space of less than a year.
There is positive news for Amazon on the grocery front as well, with a company executive pointing out that sales in this category have more than doubled. Amazon is now looking to expand its grocery operations substantially to maintain this pace of growth. The company currently sells dry groceries in 290 Indian cities through Amazon Pantry. There are 10 cities in India where Amazon currently sells both dry and perishable grocery items through its Fresh platform.
The company intends to expand Amazon Fresh's reach to the top 50 Indian cities, which should help Amazon maintain a strong market share in India's online grocery market. Amazon reportedly controlled 31% of online groceries in India in 2019, following market leader Big Basket's 35% share. The latest numbers aren't available, but it is likely that JioMart has eaten into Big Basket's share, as we saw earlier in the article.
Amazon needs this trend to continue and hold on to its market share against JioMart. Amazon looks capable of doing so, as evident from the company's recent moves, which could substantially boost its revenue in India given the potential of the country's online retail market.