Can JioMart and Facebook Revolutionize Traditional Retail in India?

Back in April, Facebook and the Indian grocery shopping platform JioMart announced a partnership that sent ripples through India’s e-commerce and e-grocer sectors, which is currently dominated by the likes of Amazon, Big Basket, Flipkart and Grofers. Jio Mart and Facebook, which owns Whatsapp, come to this market at a scale and a time when they can technologically enable and digitize critical processes in informal retail — inventory management, order management, payments, loyalty rewards and accounting taxation — revolutionizing the sector.

While this partnership raises some concerns around data privacy, in a way this is a great time to be a traditional kirana (grocery) shop in India, with so much capital and technology vying for your attention.

Rethinking retail

As discussed in an earlier blog post, Facebook appears to be leveraging the popularity of WhatsApp to move into e-commerce in countries like India and Indonesia. The JioMart venture accompanies Facebook’s $5.7 billion investment in JioMart’s parent company, Jio Platforms, which is the digital services subsidiary of India’s largest listed company, Reliance Industries Limited (RIL). It also comes at a time when Facebook is awaiting the final regulatory nod to enable large-scale integration of digital payments into WhatsApp. If the approval comes through, WhatsApp has a real chance to become the dominant player on India’s open and widely interoperable digital payments system, the Unified Payments Interface.

Meanwhile, by integrating their platforms, Facebook and JioMart enable neighborhood grocery stores known as kirana shops to fulfill orders from nearby customers via WhatsApp and the JioMart online marketplace. Customers just text “hi” to JioMart’s WhatsApp (for business) account and are led through a simple process for placing their order, which is then fulfilled by a nearby kirana shop that is part of the JioMart network. Until now, customers have had to go to the store to pay and pick up their goods. With JioMart, they have the option to pay online and have their goods delivered.

The joint venture’s business model may have some built-in advantages over competitors like Amazon and Flipkart. Rather than procure, store and ship goods from huge warehouses, JioMart makes bulk procurements at large discounts (leveraging demand) on behalf of partner kirana shops. The kirana shops, in turn, act as nonexclusive local inventory and deliver the products to nearby end-customers. Unlike competitors, JioMart effectively receives free storage and last-mile distribution from the stores in its network, while retailers save money and gain access to online orders.

Following a pilot involving 1,200 stores in the suburbs of Mumbai, the partnership is now live in 200 cities. One of the first stores to participate in the pilot is already reporting about 10 percent of its sales coming from JioMart. India has about 12 million kirana shops, while Facebook has 370 million users and 400 million WhatsApp users in India. JioMart services could therefore eventually be offered on a massive scale. Kirana shops are part of a historical tradition that is embedded into India’s social fabric. A retail revolution may well result if the JioMart-Facebook strategy is to technologically enable kirana shops rather than disintermediate them out of business.

What this could mean for the kirana shop owner

If Facebook and JioMart attempt to scale up the venture (and are permitted by regulators to integrate digital payments into WhatsApp), it could potentially benefit small business owners in several ways:

• Larger customer base. JioMart matches online customer demand to inventory within its network of stores, enabling merchants to serve a larger customer base, beyond walk-ins. By acting as a local warehouse and fulfilling orders, merchants create additional revenue streams.
   
• Cost savings. Merchants on JioMart may choose to source merchandise at discounted rates through the Reliance Retail Network — RIL’s own network of retail stores that pools demand to command lower prices. Some merchants are sourcing as much as 90 percent of their inventory from the network. When merchants sell these products from their stores, they could potentially see higher margins than for goods they acquire from other distributors; however, more data will be needed to show whether this is the case.
   
• Access to credit. As part of the pilot, merchants are installing point-of-sale machines. The data trail created by digitizing order and inventory management could help financial services providers offer credit to such stores. Currently, it appears that Reliance Jio is directly extending trade credit to merchants. If it does decide to share merchant transaction data with traditional lenders, then some retailers could receive their first formal loan as a result of becoming a JioMart partner. Since the pilot began in April, merchants in the pilot have seen their weekly trade credit limit double.
   
• Digital payments. Since merchants using the Facebook-JioMart service receive digital payments for online orders, it might be possible to nudge them to pay their other suppliers digitally or accept digital payments from walk-in customers.
   
• Formalization of informal retail. The JioMart ecosystem could lead to the formalization of informal shops’ processes for order and inventory management. As mentioned, cash-flow data (subject to appropriate data privacy rules) also could open up channels of credit that have until now been harder to tap.

Concerns around data privacy

One potential concern — already a thorny issue for WhatsApp — is that of data privacy. It is not clear what types of retailer data WhatsApp and JioMart might exchange or how these data will be used. A draft data privacy bill is pending comments from a parliamentary committee. But a clear time frame for a legal framework is not available at present. It is difficult to predict the impact a law might have on businesses like Facebook and Jio Platforms.

Conclusion

Jio Platforms has attracted a series of investments. Earlier this month, Google made a $4.5 billion investment and aims to help Jio develop entry-level smartphones that run on Android for low-income customers. And JioMart isn’t the only player in the market wooing small retailers. Amazon with its “Local Shops” program, Flipkart with its seller program, Google with its spot platform and others like Shopkirana and Khatabook also are unfolding plans to woo local stores along different parts of the digital value chain. Enough reasons exist to think that this transformation could be beneficial to small business owners in the long run.