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.

India’s offline retail king Kishore Biyani / Photo credit: wikipedia/rediff

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.

Mukesh Ambani’s Reliance Retail received US$1 billion from GIC, TPG. / Source: Flickr

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.

Negotiations for a better deal