Amazon vs. Reliance Retail: First Shots Fired In The Indian Ecommerce Battle

Amazon Inc. recently sent a legal notice to Future Group for allegedly breaching its non-compete contract over the latter’s deal with Reliance Industries Limited (RIL). Hours later, Amazon took the matter further by approaching the Singapore International Arbitration Centre (SIAC) to try to call off the deal between RIL and Future Group.

“We have initiated steps to enforce our contractual rights. As the matter is sub judice, we can’t provide details,” said an Amazon spokesperson on approaching SIAC, according to a Livemint report.

First shots fired

Amazon’s decision to take legal action against Future Group, which was founded by Indian billionaire Kishore Biyani, comes a month and a half after the deal was first announced.

The acquisition deal between Mukesh Ambani’s Reliance Retail Ventures Limited and Future Group – worth 247.1 billion rupees (US$3.38 billion) – was reported on August 29, 2020.

Reliance Retail’s acquisition of Future Group is widely seen as a significant move to expand its retail business and take on leading ecommerce players such as Amazon and Walmart’s Flipkart through its JioMart platform.

The acquisition deal – which is awaiting regulatory approval – is one of the biggest in the country this year and took the market by storm. If the agreement is not called off, it would give Reliance Retail unparalleled access to over 1,800 stores spread across over 420 cities in India. The deal also includes Future Group’s own retail and wholesale business, as well as its logistics and warehousing arm.

According to Amazon, it had acquired a 49% stake in Future Coupons – a promoter group entity of Future Group’s retail business – for 15 billion rupees (approximately US$205 million) in December last year. As per the deal, Amazon holds a 3.58% stake in Future Retail Limited – the retail arm of Future Group in question and its flagship brand – and the right of first refusal to buy more stakes in the unit.

Amazon says the deal “breaches the terms of its contract by selling a significant portion of the business to Ambani’s Reliance Retail.”

Big funds rolling into Reliance Retail

Reliance Retail’s acquisition deal of Future Group has been bolstered by a string of investments amounting to over US$5 billion in the last few weeks from leading global investors including Silver Lake, KKR, General Atlantic, Mubadala, GIC, TPG, and ADIA.

This bestows big spending power on Reliance Retail, making it an even bigger threat in the ecommerce space. Not only will it have the massive infrastructure in place but also the financial capability to offer deep discounts to acquire customers – a strategy that current ecommerce leaders Amazon and Flipkart extensively used in their early stages in India.

What will be more troubling for Amazon is Reliance Industries’ success at winning price wars.

Reliance entered an already crowded telecom market in 2016, with the launch of Reliance Jio Infocomm Limited, and went on the offensive by offering free calls and data to users.

Existing players suffered and mergers ensued – Vodafone India and Idea Cellular merged two years later to become Vodafone Idea Limited – to take on Reliance Jio.

In 2020, Reliance Jio Infocomm is the leader in the market with 392 million subscribers and is continuing to add to its user base at the expense of Airtel and Vodafone Idea, according to a recent report by the Press Trust of India.

Negotiations for a better deal

Another reason for Amazon to flex its legal muscles may be to look for a sweeter deal with RIL.

Earlier in September, Amazon expressed interest in a deal to acquire a 40% stake in Reliance Retail for US$20 billion. The company held talks with RIL, but no deal was concluded.

That said, the talks between Amazon and Reliance Industries had begun much earlier. In July, Amazon held preliminary talks with Reliance Industries to acquire a 9.9% stake in its retail arm, as per an ET Now report.

It appears that as the financial strength of Reliance Retail grows, Amazon is now on the lookout for ways to avoid a costly battle with the conglomerate by acquiring a stake in it and thereby ensuring that its market share is not threatened.

With Amazon now taking legal action against Future Group, it is likely that we may see Reliance Industries come back to the negotiation table and resume its talks with the Jeff Bezos-led firm. This means that the ecommerce giant has the leverage to bargain for a more favorable deal for a stake in Reliance Retail and may even put restrictions to see that the Indian firm doesn’t infringe on its business.

If a deal materializes between Amazon and Reliance, it could help the latter create an ecommerce giant like China’s Alibaba Group.

For Amazon, partnering with a local firm that has a hold of larger markets across Tier 2 and 3 towns across India – which have been largely dominated by brick and mortar retail stores – could be beneficial.

While Future Group intends to settle amicably, either through mediation or arbitration, as per media reports, this may just be the start in a drawn-out battle for leadership in the Indian ecommerce market.

Sandip Ginodia , CEO

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