Why the Facebook Jio combine could be a gamechanger for kiranas, micro and small entrepreneurs

Why the Facebook Jio combine could be a gamechanger for kiranas, micro and small entrepreneurs
Mukesh Ambani   |  Photo Credit: Reuters
22 Apr, 2020

On Wednesday, social media giant Facebook said it would make a strategic investment of $5.7 billion in India’s largest telecom operator Reliance Jio in lieu of a near 10% stake. The investment, which also marks the largest foreign technology investment in this market, could prove to be a gamechanger for India’s kirana stores and micro, small and medium enterprises (MSMEs).

The Mukesh Ambani owned Reliance said the partnership will focus on “India’s 60 million micro, small and medium businesses, 120 million farmers, 30 million small merchants and millions of small and medium enterprises in the informal sector, in addition to empowering people seeking various digital services.”

What it means for the country’s small businesses, especially the kirana network, is a new impetus for growth, especially as they face a long road to economic recovery ahead in the wake of the global Covid-19 pandemic.

“India is home to the largest communities on Facebook and WhatsApp, and a lot of talented entrepreneurs. The country is in the middle of a major digital transformation and organizations like Jio have played a big part in getting hundreds of millions of Indian people and small businesses online,” Mark Zuckerberg wrote on his Facebook page.

“This is especially important right now, because small businesses are the core of every economy and they need our support. India has more than 60 million small businesses and millions of people rely on them for jobs,” he added.

In a video statement, Mukesh Ambani said Jio Mart and WhatsApp will together enable nearly three crore kirana stores with digital transaction capabilities. 

“This means, all of you can order and get faster delivery of day-to-day items from nearby local shops. At the same time, small kiranas can grow their businesses and create new employment opportunities using digital technologies,” Ambani said.

Reliance’s ecommerce venture JioMart is gearing up for an end-to-end retail play where it will be the supplier (first mile), distributor, online aggregator of demand, and the last mile delivery partner to kirana stores.

“Both the firms have a single dream of ecommerce. Facebook doesn’t have men on ground, Reliance is going to do that for them while WhatsApp is the platform where all the users and merchants are available, it will also have payments too soon, so this will turn into a WeChat kind of platform in the long term and Reliance is betting on that opportunity,” said Satish Meena, a senior analyst at Forrester Research.

When Jio’s close to 400 million telecom subscriber base is combined with the reach of Whatsapp and Instagram, the partnership naturally achieves a greater distribution power. 

“It does seem that Facebook and Jio are together building a super app, like Wechat in China. With that end goal in mind, on the product side Reliance’s scale and clout in India will allow different products on the app at very competitive rates. For example SMEs could be given loans at better interest rates than they would have gotten otherwise,” Viram Shah, CEO and co-founder of Vested Finance said.

With scale, the partnership is likely to explore cross-selling opportunities. Jio’s data capabilities and Facebook’s social media platforms will enable the partnership to find synergies in content distribution, taking on TikTok, Shah said. 

TikTok is the short video platform owned by China’s ByteDance and currently growing at a feverish pace in India in terms of user base.

Read: When India got lip syncing to TikTok

Reliance is the country’s largest retailer by revenue. Unlike ecommerce marketplaces such as  Walmart-owned Flipkart and Seattle headquartered Amazon, the oil-to-telecom conglomerate works with almost all entities in the retail chain including producers, retailers, medium-size merchants and small traders. 

With its strong network coupled with the precise business-owner data of WhatsApp, Reliance looks to build a super distributor network where it can connect the kirana stores on an online tech platform. The kirana network will be on-boarded onto Jio MPoS network, its mobile point-of-sale device and will be provided with its high-speed Jio Fiber internet services where shoppers can place orders and do transactions.

“The combined offering can be attractive to customers looking for savings and convenience in household grocery. Being the largest retailer, Reliance can get the best deals from FMCG firms, can create private labels at scale, can provide the cost savings to households. They will be able to customize the offerings according to the customer segments and reach out to customers in tier-II and III cities when they start opening stores because WhatsApp has the data,” Meena said. 

What it offers to kirana stores is a cost advantage. Reliance can pick a product directly from a brand or manufacture and deliver directly to the kirana using its own well-established physical network while optimising orders for bulk purchase with its tech infrastructure. Kirana stores can pass on that benefit to their neighbourhood users, offering discounts and other perks including free delivery, like any other ecommerce platform.

“Tech clubbed with first and last mile delivery, Reliance can eliminate all the stockists and distributors and become the master distributor for all brands. Reliance wants to play high volume and low margin, essentially giving back almost 30-35% margin on MRP to the Kirana store guy. Imagine your kirana store giving you a 20% discount, clubbed with cashback offers and free delivery. The game will shift now,” Mohit Gulati, managing partner of ITI Growth Opportunities Fund, said.

Reliance has been working with FMCG companies to do targeted ads through its MyJio app while luring customers from other telco networks still remains an expensive affair. WhatsApp’s 400 million user base cuts across all horizontal networks. 

“With WhatsApp, it doesn’t matter what telco you are using, Reliance gets access to users from across the country, which is why this acquisition will make a lot of sense. While Facebook will actually be able to monetise its acquisition of WhatsApp, Reliance’s new commerce will gain a huge uplift,” Gulati said.

The Covid-19 pandemic has modified, if not changed customer buying behaviour. There is an uptick in online purchase of grocery and other items, which is expected to continue. Kiranas are seeing an increase in online orders and would continue to leverage this shift in purchasing behaviour and Reliance could become a natural ally for them.

“In the Covid-19 aftermath, people are receptive to digital services, there is a surge of online ordering. Kiranas are willing to experiment with it. Everyone is trying to reach out to the kirana. But if there is someone who can offer them a sustainable model and long-term earnings, it’s Reliance,” Meena said.

With the tech capabilities of WhatsApp and Facebook’s other products including its social media platform and photo-sharing app Instagram, kirana stores can achieve an increased hyper-local vicinity in comparison to the immediate neighbourhood they serve now. In the long run, Facebook will leverage Instagram and its wide social media network to do targeted hyper-local advertisements which will bring in revenues for Reliance, Facebook and for the kiranas. With its potential super app play, they will be able to do targeted couponing as well, based on the consumption patterns. It would help them market better and make customers transact on multiple products.

“Whatsapp has largely until now been facilitating messaging for businesses and recently has gone into payments. With Jio, they can also enter into e-commerce and instead of facilitating payments, actually go much deeper into an SME’s business from listing inventory on the platform to ensuring delivery,” Shah of Vested Finance said.