Reliance Industries' Disjointed Approach Leaves Retail Dreams In Disarray | Profit Insights

Since its inception in 2006, Reliance Retail has grown to become India's largest retailer catering to the daily needs of 1.4 billion people. Until recently, the Asia’s richest tycoon-led business' market leadership was fueled by a growing store network (1.5 times increase over FY22-23), investments in new brands ($1.2 billion), and scaling digital.

"But its growth has come under pressure as stores got streamlined and quick commerce took market share," according to Rahul Malhotra, a senior analyst at Bernstein. A general consumption slowdown further deepened its woes.

In the last couple of quarters, the revenue growth in retail and digital commerce slowed to 3-7% over the previous year, dragging the growth of the overall retail division to single digits as against its historical growth rate of roughly 20-25%. The company's net revenue grew a meagre 7% year-on-year in the December quarter of this fiscal, showing its filing with the exchanges. However, revenue growth continues to trail operating metrics like transaction growth of 11% and customer addition of 15%. The growth in footfalls has stagnated at 296 million for the last three quarters.

Since its inception in 2006, Reliance Retail has grown to become India's largest retailer catering to the daily needs of 1.4 billion people. Until recently, the Asia’s richest tycoon-led business' market leadership was fueled by a growing store network (1.5 times increase over FY22-23), investments in new brands ($1.2 billion), and scaling digital.

"But its growth has come under pressure as stores got streamlined and quick commerce took market share," according to Rahul Malhotra, a senior analyst at Bernstein. A general consumption slowdown further deepened its woes.

In the last couple of quarters, the revenue growth in retail and digital commerce slowed to 3-7% over the previous year, dragging the growth of the overall retail division to single digits as against its historical growth rate of roughly 20-25%. The company's net revenue grew a meagre 7% year-on-year in the December quarter of this fiscal, showing its filing with the exchanges. However, revenue growth continues to trail operating metrics like transaction growth of 11% and customer addition of 15%. The growth in footfalls has stagnated at 296 million for the last three quarters.

For the nine months ending December 31, 2024, the company's revenue stood at Rs 2.12 lakh crore, which is a 3.35% increase over last year.

Malhotra noted that Reliance Retail runs an exceptionally complex business with several formats such as Reliance Smart (grocery), Reliance Digital (electronics), Reliance Trends, (fashion). Alongside, it runs apps for everything ranging from grocery and beauty to clothes. It has partnered with over 50 global marquee brands and also operates Netmeds for pharma products. This is in contrast to peers — DMart, which operates large grocery stores and Trent which runs large apparel store formats. "Its ability to operate consistently gets difficult in a complex environment."

Pressure is mounting for the retail behemoth as senior leaders are tasked with driving the quick commerce growth. Frequent review meetings with regional leaders are being held to monitor progress, according to industry insiders. While the company is eager to scale its quick commerce operations, there is a reluctance to build a dedicated digital team, they said. Instead, the expectation is for the same team that manages offline sales to oversee digital sales as well, with a clear goal of tapping quick commerce, which has reshaped consumer shopping habits in the country.

In a bid to adapt to the digital shift and revamp its retail empire, Reliance Retail has been shutting unprofitable stores. The retailer, which boasts the country's largest network of stores, totalling 19,102, has shut 1,300 unprofitable stores so far in fiscal 2025. Majority of them were within the grocery vertical, including Reliance Fresh stores in tier 1 & metro cities, which were impacted by rise of quick commerce. It invested in quick-commerce startup Dunzo way back in 2022 and also runs grocery app — JioMart.

But recently, the company wrote off its $200 million investment. Bernstein's Malhotra believes "Reliance has not been able to use its digital footprint to build a quick commerce or a digital strategy".

Vivekanand Subbaraman, a research analyst with Ambit Capital Pvt., concurs. "We see Reliance’s retail strategy being all over the place... perhaps its lack of focus has cost it the opportunity to dominate or create a market where it entered into much earlier via Dunzo than current players."

He explained that Reliance Retail ventured into e-commerce, attempting to leapfrog over its rivals through ‘New Commerce’. This approach involved partnering with retailers or ‘kirana’ stores rather than the traditional e-commerce model.

However, the company fell short of its ambitious target to onboard 10 million kirana partners by 2024 despite Metro Cash & Carry India Pvt.'s one million active kirana partners that it got as part of the Rs 2,850 crore deal. As of FY24, Reliance Retail had managed to onboard only four million kirana partners. Its ‘digital and new commerce’ contribution to overall revenue is stagnating at 18%. Revenue from this segment rose just 3% over last year.

JioMart, which began by offering slotted delivery, is steadily rolling out quick commerce service to catch up with the 10-minute models of startups such as Zomato-owned Blinkit, Swiggy Instamart and Zepto.

Since launching in select areas of Mumbai and Bengaluru in Oct. last year, JioMart offers quick delivery in about 1,000 cities now. Unlike peers, it doesn't charge any platform fee or delivery fee. Yet, the service isn't finding many takers. In Q3 FY25, Blinkit outpaced modern grocery retailers with a sequential growth of 27%. This compares with Reliance Grocery's 18% growth. A year-over-year comparison would not be accurate due to base effects. Besides, JioMart's market share based on monthly active users fell to 10% in Dec. from 19% in Jan. 2024. It has lost share to Blinkit and Zepto.

"To become profitable and to sustain over a longer time, the product lines of pure-play quick commerce players are now evolving to tap into higher value and higher margin products, as well as urgency-driven situations such as gifting," said Devangshu Dutta, chief executive officer of retail consultancy, Third Eyesight. "The larger incumbents among physical retailers need to discover their own right to win beyond overall scale and size of their balance sheets, to make up for the late entry into the market."

Reliance Retail Ventures Ltd. has raised over $8 billion since 2020 diluting about 12% stake with a potential IPO in 2025-26 to provide an exit for private equity investors. But slowing sales have been a concern for analysts, who have lowered the retail business' equity valuation to as low as $50 billion —half of what it was in 2023. To fix these concerns and revive investor sentiments ahead of its public listing, Ambani along with his daughter Isha, is carrying out cost cutting measures, including job cuts.

Reliance didn’t respond to NDTV Profit's email seeking comments on the digital strategy.

Analysts, however, say that the conglomerate may have to look beyond cost cutting and limiting expansion for the next phase of growth.

"We’ve argued in the past that peers in quick delivery have embraced a laser-focused strategy," said Subbaraman. "On the other hand, Reliance has divided its attention to acquisitions, own brands and kirana commerce. But now, its growth numbers clearly indicate a need to rethink digital strategy."