IS AMAZON'S TUSSLE WITH RELIANCE JUST OVER THE FUTURE GROUP?

They say “When?elephants fight, it is the?grass?that?suffers.” How better could one explain the ongoing tussle between the two elephants – Namely Amazon and Reliance and the collateral damage that a troubled Future group is suffering due to this. Well, Future Group is no small ‘grass’.

A Rs. 3 Billion Dollar retail behemoth, serving over 600 million customers across 2000 stores and 400 cities – that is no joke. But that is no easy game either. Not even something stalwarts like Amazon and Reliance could pull off. And THAT precisely is the reason why both these elephants are interested in making this their own fodder. Well, enough metaphors. Let us get down to brass tacks.

Delving into the details of this protracted dispute requires us to understand how influential these conglomerates are.

In 2018, Reliance Jio introduced India to free voice calls and data services available at dirt-cheap prices. In other words, Jio revolutionized the telecom sector and the rate at which Indian users consumed data services. That's not it. Reliance has a stronghold in several sectors. There is Reliance retail, Reliance Petroleum, Reliance Industrial Infrastructure Limited, Network 18, to name a few. Each time you shop from Ajio or read publications like Moneycontrol and News18, you're utilizing goods and services provided by Reliance Industries Limited. To sum it up, this multinational conglomerate has a net worth of 230 billion dollars.

Undoubtedly, the stronger the company, the bigger the rivals. Reliance is locking horns with the American e-commerce giant Amazon. To illustrate just how big a deal Amazon is, we will put out specific facts and figures. It was estimated that Amazon would be responsible for more than 40 per cent of Americans' e-commerce spending in 2021. Moreover, Amazon is also the dominant cloud service provider globally through Amazon Prime, which also happens to be its most lucrative vertical. Its annual subscription crossed 150 million paid members in 2020.

Naturally, if the business interests of two mighty giants conflict, there is likely to be a long drawn tussle.

What triggered the legal battle?

In August 2019, Amazon acquired a 49% stake in Future Coupons, a promoter company of the Kishore Biyani owned Future Group. (Even if the name Future Group is alien to you, you have probably been a customer at its operating companies- Big Bazar, FBB and Central. The probability is high because the company has 1800 stores across 400 towns in the country!)

After this transaction, they were also legally entitled to own 3% assets in the Future Group. As insignificant as this number may seem, it gave Amazon certain rights. The deal brought with it a non-compete clause. As per the terms and conditions, Future group was proscribed from selling its assets to a list of companies. Naturally, this list included Reliance, Amazon's biggest rival in India. Furthermore, the Singapore International Arbitration Centre (SAIC) would settle any disputes between the two parties.

In 2020, the pandemic hit the Future Group. It decided to sign a Rs 24,713 crore deal with Reliance Retail, a subsidiary of Reliance Industries Limited, to sell its wholesale, retail, logistics and warehousing. Amazon challenged this decision in the SAIC. The judgement issued an order to put the Reliance-Future deal on hold. However, Reliance was not legally obliged to follow the order because of the Arbitration and Conciliation Act, 1996.

As a result, Amazon immediately wrote to the market regulators-Competition Commission of India (CCI) and Securities and Exchange Board of India (SEBI) to accept the judgement. As against this, the Future group appealed to the High Court to restrict Amazon from taking the matter to SEBI.

The decision of the Delhi High Court came as a setback for Amazon. It decided upon halting the arbitration proceedings between the two companies with respect to the decision taken by CCI. Ever since then, the arbitration has been on hold.

What are the latest developments?

On 26th February, Reuters reported that Reliance has taken over at least 200 retail stores owned by the Future Group. This move resulted from the Future Group being incapable of making lease payments for some of their outlets. Correspondingly, Reliance will rebrand these stores. It has also offered ex-Future employees jobs at the rebranded Reliance stores. Amazon claims that Future group infringed on their August 2019 deal. SAIC and Indian courts back Amazon's stand.

Just today, we have come to hear that Future and Amazon lawyers may be willing for an out-of-court settlement – and these are at Amazon’s behest. While the Supreme Court has welcomed the discussions, it has also given both parties until March 15 to explore a settlement through negotiations.

?Are Amazon's problems in India limited to this deal?

In 2020, Amazon announced its grandiose plans of expanding in India. While promoters of open market economies welcomed this change, Amazon faced backlash from local vendors and the brunt of government regulations.

Since 2018 the government regulations on Foreign Direct Investment have become stricter. As per the rule, international companies cannot own more than 51% of the local brick and mortar supermarket chains. Furthermore, in 2016 the Indian government capped the online marketplace sales from a single seller at 25% of the total sales. This came at a time when Amazon's 2014 deal with Cloudtail, its primary seller, was proving to be profitable. As per a report by Reuters in 2016, Cloudtail's share of sales on amazon was around 47% of the total Amazon sales. The regulation came as a significant setback for Amazon. On top of all this, Amazon was prohibited from selling its range called 'Amazon Basics'.

Some of these factors also gave Reliance an advantage over Amazon. Reliance has an advantage because of its physical presence in the form of stores. For this reason, Reliance's reverse supply chain (the chain of supply when the customer returns the product) proved profitable. The delivery boy from Reliance can pick up the product and return it to the closest reliance store. This saves packaging material, packaging cost, and the cost of labour. On being returned to the store, if the product is usable, it gets sold at a discount in a separate section called the refurbished section at throwaway prices.

On placing a return request on Amazon, the product gets picked up by a delivery boy and gets transported to a hub, where it gets packaged. It is then sent to a local warehouse or seller, where it sits in the inventory. This implies a total waste of transportation, labour and packaging. Hence, customer returns are a crucial problem for Amazon in India.

Reliance's physical presence, which gives it an upper hand over Amazon, will only increase with the new 200 Future stores.

It is evident that Amazon's legal battle with Reliance is not just over the Future group. It's about expansion and having a stronghold. It's bigger and more complex. Reliance seems to be working towards becoming the one-stop-shop for Indian consumers and shrugging off any competitors. For Amazon, manoeuvring its way through the Indian market may not be easy, but it's certainly valuable.

It's worth observing what comes out of this almost business war between the two.?