After starting a distribution price war last year, Reliance Industries’ online wholesale format JioMart has laid off more than 1,000 employees as it aligns its operations with the recently acquired Metro Cash and Carry.
This is part of a larger cost-cutting measure over the next few weeks which will include reducing the 15,000 workforce in the wholesale division by two-thirds, three officials privy to the development told ET.
“The company has asked over 1,000 people on ground including 500 executives at its corporate office to resign over the past few days. It also plans to have another large round of layoffs with hundreds of employees already put on performance improvement plan (PIP),” one of them said.
“Rest of the sales employees have been put on variable pay structure after Reliance lowered their fixed pay salary,” he added.
Reliance’s business-to-business (B2B) format replaces traditional distributors for kirana stores. With the addition of Metro’s permanent workforce of 3,500 people, there will be an overlap of roles both at the backend and online sales operations, the officials said.
Also, after starting a price war in the grocery B2B space with deep discounting – which prompted traditional distributors to threaten to halt supplies from consumer products companies – JioMart is looking to focus on improving margins and reducing losses, the officials said.
The company is planning to shut more than half of its 150-odd fulfilment centres that supply groceries and general merchandise to neighbourhood stores, they said.
Reliance Retail did not respond to a detailed email query sent to them.
Last week, German retailer Metro AG had announced completion of the sale of its Indian cash and carry business of 31 stores to Reliance Retail for Rs 2,850 crore.
While organised retail and wholesale still account for only 10-15% of India’s overall fast-moving consumer goods (FMCG) sales, companies such as Reliance that control more than half the organised retail market are increasingly getting greater leverage over supplies.
Experts said consumer product companies are increasingly shifting to online B2B, either as an addition to their current distribution network or as a replacement for ineffective traditional distributors.
At scale, eB2B platforms are likely to have a return on investment (RoI) of 50%, much superior to offline retail as well as cash and carry formats, according to strategy consulting firm Redseer.
Yet, experts said there is not much headroom for new players to attract retailers to switch away from distributors.
“Consumer packaged goods distribution is the hegemony of the large FMCG companies and distribution is their moat,” said an industry official who did not wish to be identified. “They hold the margins in the supply chain very tight and hence prevent new entrants. Unless new-age retailers fund the margin from loss-making P&L, wholesale business ventures in B2B are a non-starter in India where it is impossible to leverage margins with volume and scale,” the person said.
FMCG companies typically pay 3% to 7% to distributors who collect orders from retailers and deliver to them at the shop door.
Koteshwar LN, business head of Flipkart Wholesale – online B2B marketplace of the country’s leading ecommerce platform – said the key to success in the B2B space is to ensure you reach unserved and underserved retailers and deliver the right portfolio in the shortest possible time by focusing on new age tech interventions.
“Also, value-added services, including providing credit by partnering startups and banks with ‘buy now pay later’ options will help differentiate your services compared to traditional distributors and maintain sustainable relationships with key partners – kiranas and institutions,” Koteshwar said.
JioMart leverages the wide network of Reliance Retail grocery stores and well established supply chain infrastructure. It also offers lower pricing compared to other distributors, better service level to onboard kiranas on to the B2B platform and credit for working capital. Its kirana digitisation strategy helps brands reach merchants and better analytics.
During 2022-23, Reliance Retail expanded its physical store network with over 3,300 new store openings, taking the total store count at the end of the year to 18,040 stores. The company also scaled up supply chain infrastructure with an addition of 12.6 million sq ft of warehouse space during the year.