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How Reliance is planning to KILL Amazon in INDIA? : The BIGGEST BUSINESS WAR IN INDIAN HISTORY - YouTube
Channel: Think School
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Hi everybody.
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Reliance and Amazon have officially entered聽
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into one of the biggest聽
business wars in Indian history.
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We are looking at two of聽
the most powerful companies聽
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locking horns to capture the 200 billion dollar
Indian e-commerce market.
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While on one side, We've got Amazon,
a trillion dollar company with a stellar record聽
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of destroying its competition
in every sector and every country.
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While on the other side, we have the mighty
Reliance, which is by far the most powerful
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company in India with a reputation for disruption.
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And we all saw that with the Jio Revolution
that literally redefined India forever.
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And now that both these giants are going to
be fighting the billion-dollar business war
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in India, the obvious question is, What exactly
is their strategy?
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How are they planning to聽
destroy their competition?
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And most importantly, as students of business,
What are the business lessons that we need
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to learn from this iconic business war?
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The story of Amazon's dominance in India started
way back in 2013 and as we saw
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in the previous episode, they are creating
a very, very powerful ecosystem using the
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sun cost strategy of Amazon Prime video.
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And because of their 60+ Warehouses spread聽
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across 15 states, Amazon聽
has the highest penetration
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in India, along with Flipkart, which enables
it to deliver products upto 15000 PIN codes.
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And these PIN codes include all types of cities,
starting from tier 1 cities to tier 4 cities.
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In addition to that, Amazon has a huge amount
of data about what does each customer want
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and what they don't want.
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Apart from that, they've also got the best
customer support in the world.
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So now the question is, while Amazon has spent
eight long years
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in mastering this art of e-commerce in India
to build a robust supply chain and customer
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loyalty, How is Reliance even planning to
compete with Amazon in the first place?
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The answer to that lies in the most important
asset of any e-commerce company and that is
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the supply chain.
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Now if you
compare the supply chain of both these companies,
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while Amazon has around 60 giant warehouses
in 15 states, Reliance has more than 12000
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micro warehouses in 7000 cities spread all
across the country and these warehouses exist
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in the form of Reliance retail stores.
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Now this distribution
chain, ladies and gentlemen, gives Reliance
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three incredible superpowers over Amazon.
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Number one- while Amazon can give you a one-day
delivery, Reliance can give you a two-hour
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delivery.
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For example- Both Reliance and Amazon have
data that says that Chitale Bakarwadi or Sparx
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sandals sells very well in Pune.
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But while Amazon can bring it only up to the
nearest warehouse that is hundreds of kilometres
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away from your house, Reliance can bring it
to your closest reliance store, which is just
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a few kilometres away.
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Because of which, it can give you a two-hour
delivery, whereas Amazon will take at least
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a day or two to come.
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And of course, the products that are not available
in the Reliance retail store, they will take
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a day or two to come, which is same as Prime
delivery.
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Secondly, because of the data accuracy, Reliance
has been able to build such a robust supply
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chain that while Amazon e-commerce marketplaces
reported a loss of 5849 crores, Reliance Retail
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has been extremely profitable with 9842 crores
in profit and not just that, they also had
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a footfall of 640 million in their Reliance
retail store.
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And thirdly, because of these two factors,
there is a very big disadvantage that Amazon
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has over Reliance and that is customer returns,
because this is what Amazon returns looks like-
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I'm scared to think about how much stuff
is going back to landfills, because it's just
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it's endless amounts of this stuff everyday.
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Returns are the largest challenge to e-commerce
for both retailers and manufacturers.
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So, slightly more than a hundred billion dollars
in returns.
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In e-commerce, its twenty or thirty percent
get returned.
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Seventy-nine percent of consumers want free
return shipping.
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Five billion pounds of waste gets thrown away
as a result of these returns that can't be
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resold.
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So long story short, the three points to be
noted in this sequence is that, Number one-
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More than
seventy percent of the customers look for
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the return policy, which makes it an essential
feature
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of any e-commerce platform.
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Number two- If you ask your customers to pay
for the return shipment,
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there is no way you're going to retain them.
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Therefore, the seller has to pay for the return
shipment.
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And lastly, because a large chunk of the Amazon.in
products are sold by Amazon itself, it comes
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at an exorbitant cost with 100 billion dollars
worth of returns in Amazon America alone.
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So
practically, the reverse supply chain of the
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return shipment is a billion dollar loss venture
for Amazon, but not so much for Reliance.
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The question is, why is this only a loss venture
for
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Amazon and not for Reliance?
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Well that is because, here's what the reverse
supply chain of a
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conventional e-commerce return shipment looks
like- When you place a return order, it first
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gets picked up by a delivery boy.
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Then,
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it gets transported to the hub.
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Over there it gets packed and then it is either
sent to a local
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warehouse, or back to the seller.
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Over there it sits in the inventory, either
to be destroyed,
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or until someone else places the order.
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This means a total waste of transportation,
labour
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and packaging for both delivery to the customer
and back to the warehouse.
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And this is not applicable
for Reliance, because as far as Reliance is
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concerned, the delivery boy from the Reliance
store
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could just collect it and keep it at the nearest
Reliance store.
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And because the Is so close by,
most of the products wouldn't even need to
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be packed, saving them tons of packaging material,
millions of dollars in packaging costs and
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millions of dollars in the labor that is needed
for
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packaging.
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On top of that, after the product goes to
the store, if it is really faulty, it would
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go back to the seller or it would be thrown
away.
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But, if it is fairly usable, it could either
end
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up back on line or it could be featured
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in something called the refurbished section
at the Reliance retail store, such that, all
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these
return products could be available at a discount
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for the customers who are visiting the store.
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And these products could be made available
at a dirt cheap price.
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In business terms, It's called
the throwaway price, which is a prising that
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is specifically meant to move the product
out of
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the inventory.
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And guess what, this throwaway pricing strategy
will attract more people to
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the store by acting as a lost leader to get
them to buy more from the store, eventually
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profiting
Reliance again, even in the return shipment
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process.
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And you know what?
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I also see a possibility
where in, Reliance will tell you that, if
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you shop for 500 Rupees at the store, you
can access
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the refurbished section where in you can get
JBL speakers and clothes at a 50% discount.
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And
this is attractive enough to get people to
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spend more, which will rapidly move out Inventory.
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This is the superpower of integrating a聽聽
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high-traffic
online
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platform with a high-traffic offline platform,
like the brick and the mortar store.
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But fortunately,
or unfortunately, this luxury is available
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only for Reliance and not for Amazon.
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Now this begs
the question, When a billion-dollar company
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like Reliance can build 12000+ brick-and-mortar
stores.
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Why can't a trillion dollar company like Amazon
do it?
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I mean, they've got so much cash
to burn.
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They could just build one Amazon retail store
right next to every Reliance retail store,
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right?
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Well, not really.
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This is what brings me to the third segment
of the episode and that is
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government regulation.
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And as it turns out, from 2018 onwards, the
government regulations
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on foreign direct investments have become
more and more strict.
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And now, international companies
are not allowed to own more than 51% of the
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local brick-and-mortar supermarket chains.
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Therefore,
it is extremely difficult for Amazon to build
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a supply chain as big, or as profitable as
Reliance.
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Apart from that, one
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of the most profitable wings of Amazon is
on the verge of being destroyed.
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And if this happens,
there is also a possibility that Amazon might
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be forced to quit the Indian markets.
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To tell you
about it, if you look at Amazon's operations
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in India, they operate with two models.
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The first
is a Marketplace model, and the second is
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the Inventory model.
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The Marketplace model is a model
wherein, there are independent buyers and
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independent sellers and Amazon merely acts
as a
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platform to connect the buyers from the sellers,
whereas, in the Inventory model, Amazon is
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going to place a bulk order with the seller,
eventually having the bargaining advantage
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to
place the order at a dirt cheap price and
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then, Amazon will markup the price and then
sell it to
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the consumers by keeping the inventory to
itself, For example, if a bookseller makes
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a book
at 150 rupees and sells it on the e-commerce
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site at 450 rupees.
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In this case, if the e-commerce
company acts as a platform, it will generate
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a revenue of 112-150
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Rupees.
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But this includes the packaging cost and the
transportation cost for national delivery,
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which eventually reduces聽
the scope for commissions.
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But, if the e-commerce company operates
with the inventory model, the platform will
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buy 10000 books from the bookseller at once,
and
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will use its bargaining power of a bulk order
to buy the book at just 200 rupees per piece.
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After
that, all these books will be kept in the
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warehouse and then it will be listed in the
e-commerce
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site at 450 Rupees.
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So if you see, this gives them 250 rupees
in revenue as compared to 150 rupees
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in the previous case.
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Now although this includes the inventory cost,
it gives them a wider scope
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of profit.
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In this case, is the 100 rupees where in there
is a scope of profit for the e-commerce
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site.
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Now when it comes to books, it's just 100
Rupees.
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But when it comes to products that cost
10,000 and 20,000 Rupees, the difference in
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revenue that can be generated between both
these
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models skyrockets by
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a billion dollars.
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Therefore, the inventory model is a billion
dollars more profitable for
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Amazon as compared to a Marketplace model.
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This is the reason why Amazon entered into
a strategic
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partnership to establish giant sellers like
Cloudtail in 2014 and appario Retail in 2017.
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And using these sellers, Amazon has deployed
the inventory model to generate a major chunk
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of its revenue.
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And according to a Reuters investigation report,
in 2016, Cloudtail share
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of sales on Amazon.in was around 47% of the
total Amazon sales.
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But that month, Amazon got some
bad news because the Indian government announced
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new foreign investment rules wherein, it
capped the online marketplace sales from a
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single seller at 25% of the total sales because
of
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which, they had to bring down Cloudtail's
share of sales on Amazon platform to less
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than 25%.
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Now, from here onwards, there are certain
sensitive information that I cannot directly
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convey
to you.
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So what I'm going to do is, I'm going to attach
a link in the
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description that will help you understand
the detailed report completely and from that
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you
can draw your own conclusions.
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But long story short, while the government
of India allows 100%
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foreign direct investment in the Marketplace
model of e-commerce, it has not allowed FDI
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in
the Inventory driven models of e-commerce.
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And the competition commission of India has
also
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placed strict restrictions on Amazon selling
its own products in the form of Amazon Basics.
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And if you watch the Zomato video, you know
what I'm talking about.
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Therefore, three of the potentially
most profitable channels of Amazon have been
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restricted to a large extent.
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So as of now, on the
outside it seems as though, Amazon cannot
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match the number of brick-and-mortar store
as Reliance.
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Number two, Amazon cannot use the Inventory
model like they planned.
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And lastly, they cannot
sell their own products as much as they planned.
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This is the state of the biggest business
war
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in Indian history.
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With that, We move on to the
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most important part of the video and that
is, considering all this drama as Investors
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and as
students of business, What are the factors
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that we need to keep an eye on in order to
understand
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the future of this retail war?
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Before we move on, I want to thank our partners
for today's episode
[749]
and that is Smallcase.
[750]
Smallcase is this wonderful company that leverages
cutting-edge market
[755]
research to design a basket of stocks to help
you make the best investments possible.
[761]
In this
context, the most relevant Smallcase is the
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house of Tata.
[765]
Why?
[766]
Because the Tatas are going
to be active participants in the Retail Revolution
[769]
because of the Tata super app and also, they're
going to be an active participant in the green
[774]
energy Revolution because of Tata power.
[777]
And
what I like the best about this app is that,
[779]
even if you don't want to make any investments,
you
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can keep track of the latest and the most
relevant market updates using their new section
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and
using their blog post.
[789]
The best part is
[790]
both these contents are specifically curated
for every sector.
[794]
And if you do a deep dive into
each one of these stories, you will get some
[798]
wonderful Market Insights that very few people
will bother to understand.
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So if you want to make the most strategic
Market Investments, and
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if you want to understand the deepest insights
of the market, download the small case app
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from
the link given in the description.
[811]
Moving on to the lessons of the case study,
there are three very important points that
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you need
to study in order to understand this retail
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war better.
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Number one, there are seven major variables
that will determine the success or the failure
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of any e-commerce company.
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From the consumer
standpoint, there are three variables that
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is, cost, delivery and variety.
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And from the business
standpoint, the three variables are customer
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retention, supply chain and profits.
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And lastly,
the most crucial variable of all is nothing
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but government regulations.
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So as students of business,
you need to keep an eye
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on these seven variables, because ultimately,
this is going to be the scorecard of this
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billion
dollar retail War.
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Number two, just like Reliance, even Tata
and DMart have a huge advantage
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over Amazon and Flipkart, because they are
Indian companies.
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So keep an eye on their retail
ventures, because they've got some powerful
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strategies that can again lead to a retail
disruption.
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Apart from that, JioMart and Future Retail
case are two of the most game-changing ventures
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that you need to study about if you want to
understand the future of Amazon versus Reliance
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business
war.
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And when the time comes, I will also be making
an episode on the same.
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And lastly, I'm going
to attach three study materials for you.
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Number one is the investigation document that
contains
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information about Amazon's seller problems.
[889]
Number two is a document that contains the
new
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rules and regulations for e-commerce companies.
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And thirdly, you will also find a study material
that will teach you in depth about the major
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consequences of
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return shipments.
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So read through them and if you find time,
please drop a comment about what
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are the lessons that you learned from the
case study, or from the study material.
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That's all
from my side for today Guys, if you learn
[909]
something valuable, please make sure to hit
the like
[911]
button in order to make Youtube Baba happy.
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And for more such insightful business and
political
[915]
case studies, please Subscribe to our channel.
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Thank you so much for watching.
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I will see you
in the next one.
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Bye, Bye.
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