Facebook-RIL deal to boost digitization and job economy
The sudden attack of COVID-19 has resulted in a continuous national lockdown causing a potential slowdown in the economy of the country. Economists assume that if the situation does not normalize soon, disruptions might last longer, which is a scary situation. More than 40% of household consumption is related to services which are under lockdown and mobility restrictions.
It is required for India to create nearly 10 million jobs annually to recruit people moving into the working-age population, besides those who are already unemployed. The COVID-19 epidemic has arrived during a tough demographic period for India and would only aggravate an impending jobs crisis. With the catastrophic scenario, I believe brands will focus on digital for sharper targeting, and better return on investment (ROI) for their marketing spends.
The Facebook-RIL deal came as positive news amidst this COVID-19 situation. The deal will lead to tremendous business opportunities for both of the giants. Post Facebook's investment of Rs 43,574 crore, Reliance Industries' share took a huge leap and increased the market capitalization (m-cap) of the company. Since RIL's wholly-owned subsidiary works on digital apps, digital ecosystems, and the popular mobile service, WhatsApp can easily allow access to millions of mom-and-pop stores across the country, increasing their visibility on the e-tailing platform. The simple and the omnipresent reach of WhatsApp's payment feature makes it ideal for Indian customers and traders to have a hurdle-free connection.
Having over 10,900 retail stores in more than 6,700 cities, Reliance Retail Limited (RRL) has already noticed a gross revenue of over Rs 1 trillion. Along with employment of over 125,000 people, RRL has 100 million loyalty members, serving more than 5 million people every week. By boosting its JioMart project, the deal will help millions of local retailers and Kirana merchants to list their products on the online portal and sell them to customers. Whatsapp will enable customers to connect with businesses leading to the seamless purchase of products through mobile experience. CISCO's report estimates that India may reach over 900 million users in a few years. Facebook (FB) will have increased penetration in India since more than 560 million people in the country already have access to the internet in the last five years. The deal will also enable Facebook to expand its platforms such as Facebook Marketplace, Instagram Shopping and Facebook Pay which will support SMBs (Small Medium Businesses) thus setting up virtual shops to sell goods and services. Additionally, it will gain vast access to Reliance Jio's customers and traders. RIL can leverage the technology expertise of Facebook & the scale as well. In India, Facebook has over 350 million, and Whatsapp has around 400 million users. The plan to take-off a payment app in the country will be easier having a local partner.
As Whatsapp is already active in India, many businesses are using WhatsApp Business not only to take orders and feedback from clients but also to promote their services and increase brand visibility. Mr Ambani rightly said that the deal would use Whatsapp for delivering goods from small merchants and Kirana stores. This will not only empower nearly three crores small Indian Kirana shops to transact with every customer in their neighbourhood digitally but will also have a faster operation of order and delivery of day-to-day items, from native shops. He also mentioned that small Kiranas and merchants would be able to grow their businesses and create several new employment opportunities using digital technologies which is currently the need of the hour. In the past, under a partnership with ICICI Bank, payments through WhatsApp were introduced to about 1 million users. Recently in February, WhatsApp has received approval from the National Payments Corporation of India (NPCI) to roll out the digital transaction.
The deal gives enough leverage to JioMart to stand out in the market along with Amazon and Walmart (Flipkart) in India with efficacy. As millions of Kirana shops will be involved in the present business model, they can be the actual direct beneficiaries instead of the companies. This will set an example that both physical and digital retail can co-existence and flourish together.
Due to COVID-19, more than 50% of the consumers have shifted to online shopping as they are fearful about stepping out and going to the store. Consumers have taken the no-contact delivery approach as the key survival strategy, which is leading to faster and permanent digital-adoption momentum. Brands have also started accepting the shift in online orders. The omnichannel retailers (Offline and online retailers) are experiencing the change in business and revenue on a completely different platform as well. Retailers will observe more dependency on online orders with the shift of consumers' behaviour. Either retailer can continue to accept orders via online aggregators which will lead them to a colossal loss towards margin affecting bottom-line, or they can set up their own domain for their store/brand and restrict the revenue directly to themselves. At such instance, for example; in April, Nike decided to pull back from selling on the marketplace and aim more on its direct-to-consumer business.
Brands will be improvising and capitalizing on online personalization efforts to segregate themselves from their competitors and online aggregators. To increase direct communication with the customers and gain their trust, brands will drive personalized engagement which plays an imperative role in selling essential category items (groceries, medicines and personal care/wellness items).
India Brand Equity Foundation (IBEF) estimates that traditional retail will have a share of about 75%, whereas organized retail and e-commerce retail will reach a share of 18% and 7% respectively by 2021. The deal will help achieve the faster growth of the retail sector, which will boost the economy of our country rapidly as it is one of the strongest pillars in India valuing to about US$ 600 billion.
During this current crisis, the entire business model is a requirement to boost the value of digitalization for both small and big businesses. According to Facebook, the FB-RIL enable 60 million jobs in the country both in the rural and urban sector. Furthermore, it will also help realize the goal of 'Digital India' as it is the most significant Foreign Direct Investment in the technology sector in India.
