32 ms·

It is difficult to understand the value added by these 'sales' distributors, but I am not sure excessive profits explain the 5-10% price difference, because the

by shubb 5y ago

It is difficult to understand the value added by these 'sales' distributors, but I am not sure excessive profits explain the 5-10% price difference, because the article also says these middle men make 2-3% - that's an unexplained 12%. The price difference may be explained by different prices at the manufacturer due to different market power - supermarkets have forced the prices they pay down everywhere by being 'bigger than the manufacturer'. But it may also be Reliance cross subsidizing from its retail business - selling at a loss in order to force rivals out of the market. That would be an amazing play because they can destroy the existing distribution channel, then replace the small shops at the end of it in a few years by rolling out their own small stores with very low prices and while increasing the wholesale price they now control so the family owned small stores can't compete. This is a big 'problem' in the west too, where venture funded 'startups' can often out compete small scale traditional rivals in price temporarily by providing goods to the market at much less than cost, burning investor money until the rival way of doing things is broken, then jack the prices back up and reap the profits as a local monopoly. I say problem because I'm not sure if in the end it is good or bad. Bigger market players have options to destroy smaller players is a tale as old as time. Local monopolies are bad though, and I think government needs to take a stronger role in regulating these like they would a larger scale monopoly.

AvocadoPanic 5y ago
In the end it's very generic. All the retail and dining options begin to look the same everywhere. There's very little actual expertise or knowledge left as everything comes down from corporate and there's no no sign of knowledge or expertise there. Much of the food isn't cooked as often as it's reheated and assembled. Also the local mercantile class gets hollowed out.
- lotsofpulp 5y ago
  > Much of the food isn't cooked as often as it's reheated and assembled. Why would this be a function of large business versus small businesses? It seems like a function of the food’s sale price.
pkphilip 5y ago
A typical retail store - especially a mom and pop store, will only be able to buy limited quantities of products. For instance, 50 packs of biscuits etc.. these sorts of volumes are too small for a manufacturer to ship directly to retail establishments because transport logistics will add a huge cost to each such shipment. Consider, for example, that a shop in Bangalore needs to buy 50 packets of biscuits for sale each week from a manufacturer in Pune. Each such shipment will cost at least a few 100 rupees for transport from Pune to Bangalore once a week. This will push up prices a LOT. The way around is for the manufacturer to have a relationship with a distributor in Bangalore and they will ship several tonnes of biscuit packets (1000s of packets) once every couple of weeks from Pune to Bangalore. This is much cheaper from a logistics standpoint. So having distributors reduces the cost overall and distributors also take back expired products, handle returns etc.
- froh 5y ago
  In some countries retailer's cooperatives are the backbones of many mom and pop stores. They are large towards the manufacturer and are de facto non profits for the co-owner-shareholder co-op member shops, large and small. EDEKA is a large German one. https://en.m.wikipedia.org/wiki/Retailers%27_cooperative https://en.m.wikipedia.org/wiki/Retailers%27_cooperative
  - throwawaysea 5y ago
    This is also true in the US for independent grocery stores in many regions. They don’t have the capital and buying power of major chains, but are able to exist by teaming up.
  - pkphilip 5y ago
    Whichever way you do it, the distribution process will add to the final price because someone needs to pay for transport to the city, distribution to the retail stores etc. A non-profit may only charge enough to cover their cost but it is nonetheless an additional step in the supply chain. However, it would still be cheaper than attempting to send products directly from manufacturers to retail customers in a completely different city.
piva00 5y ago
> But it may also be Reliance cross subsidizing from its retail business - selling at a loss in order to force rivals out of the market. > That would be an amazing play because they can destroy the existing distribution channel, then replace the small shops at the end of it in a few years by rolling out their own small stores with very low prices and while increasing the wholesale price they now control so the family owned small stores can't compete. Wouldn't this be considered anti-competitive behaviour by most antitrust legislation? Price dumping to force competitors out of the market is a big no-no as far as I know but I might be absolutely wrong as a layman.
- shubb 5y ago
  Maybe it is, but it happens in other contexts. Here is a not very good article about it in the US: https://www.nytimes.com/2021/06/08/technology/farewell-millennial-lifestyle-subsidy.html https://www.nytimes.com/2021/06/08/technology/farewell-mille...
- msh 5y ago
  I think that depends on the country, so I guess that depends on local indian regulation. In my country its legal if the company does not have a dominant position in the market.
lab76 5y ago
The app is a very big deal. That never existed before. Real convenience for the shop keeper. At my corner Kirana (easily serving 500+ ppl), there is a non stop stream of sales guys and delivery vans and the shop keeper has two guys full time just to deal with it. They run around with reams of paper the whole day. Now it's all in the app which is a good thing. Buying stuff from 20 different distributors is just asking to be optimized. I am sure the data they are collecting is also going to produce lot of value.
Jansen312 5y ago
Established market player can go below cost also. But they choose not to. They have plenty of inefficiency built in due to legacy baggages like less productive older workers or unions. The competition from startups are welcome boon to destroy older players way of doing things. I won't expect the traditional player to die out. In America you can still find mom and pop shops even though 90+% decimated by the big boxes like Walmart or Amazon. NY Yellow bacs still surviving and to large extend has improved significantly their customer services after Uber and Lyft established themselves. Nokia is also a good example where they didn't opt for better UI and OS after decades of dominance though people usually wont recognized Apple as "startup" in mobile market back then.
- mschuster91 5y ago
  > They have plenty of inefficiency built in due to legacy baggages like less productive older workers or unions. "Less productive older workers" deserve jobs, too. And unions are no "legacy baggage", but vital tools to ensure decent workplace conditions and wages (see e.g. Amazon and pee bottles). > In America you can still find mom and pop shops even though 90+% decimated by the big boxes like Walmart or Amazon. Ask people in rural areas what they miss most and the answer will almost universally be shopping opportunities, as it is extremely hard to compete against Walmart and shopping malls. > NY Yellow bacs still surviving and to large extend has improved significantly their customer services after Uber and Lyft established themselves. At the cost of taxi drivers who went as far as committing suicide as the price of their medallions fell through the floor (https://www.nytimes.com/2018/12/02/nyregion/taxi-drivers-suicide-nyc.html https://www.nytimes.com/2018/12/02/nyregion/taxi-drivers-sui...). Price dumping always has follow-up costs that are externalized to society at large.
  - ryanlol 5y ago
    > At the cost of taxi drivers who went as far as committing suicide as the price of their medallions fell through the floor (https://www.nytimes.com/2018/12/02/nyregion/taxi-drivers-sui https://www.nytimes.com/2018/12/02/nyregion/taxi-drivers-sui...). Some upset taxi drivers is a perfectly acceptable cost, let the healthcare system worry about preventing suicides.
roenxi 5y ago
> This is a big 'problem' in the west too, where venture funded 'startups' can often out compete small scale traditional rivals in price temporarily by providing goods to the market at much less than cost, burning investor money until the rival way of doing things is broken, then jack the prices back up and reap the profits as a local monopoly. I come from a position of extreme scepticism that this strategy can work. In theory I can imagine it, but in practice I haven't seen a follow up like "...as was sen in the case of [practical example". The companies that try this without network effects seem to get crushed - I like to point at Uber. Their loss-making competition seems to be translating into ongoing losses rather than monopoly. Companies with network effects - and I'm thinking FANG companies - generally moved in and took out well established players by being substantially better with innovative new business models. In most cases they were profitable most of the way through their journey.
- Retric 5y ago
  Amazon is a solid example of burning everyone else out of the market with VC funding. Don’t be fooled by their nominal profits, for retail their making money hand over fist and simply use tax avoidance strategies to turn profits into capital.
  - lotsofpulp 5y ago
    They burned everyone out of the market with venture capital funding they got between Jul 1994 and May 1997, at which point they went public? The $8M from Kleiner Perkins in 1995 seems like a small amount to have been possible to burn everyone out of the market: https://www.fundable.com/learn/startup-stories/amazon https://www.fundable.com/learn/startup-stories/amazon Are Target and Walmart and Home Depot and all other retail stores also hiding profits and choosing to report only 2% to 4% profit margins to avoid paying taxes for the past few decades? Could it not be that the retail business has optimized down to low single digit profit margins? Seems like a baseless conspiracy theory.
    - shubb 5y ago
      When a company issues shares to the market, investors who buy those shares are investing in the company, and the company can take that investor money and spend it on equipment, wages, or I guess subsidising goods to undercut the competition. Many companies buy back shares, returning money to investors and increasing the price of their current shares. There are arguments about whether this is a good thing, but the fact remains that Walmart and Microsoft (comparable companies) have bought half and 1/3rd of their shares - returning large amounts of money to investors. This is in contrast to Amazon. Amazon have constantly issued new shares. This isn't a company that took some initial VC money and turned it into profits. As a company that has not been making a profit and has constantly been issuing new shares, Amazon has factually been running on investor cash for 20 years. I'm not saying the investors don't get a good deal. Investors know they are paying for Amazon to build market share by undercutting. I'm just saying what happened. Here is the graph: Amazon borrowing from the market to subsidise its loss making business in order to build marketshare: https://www.macrotrends.net/stocks/charts/AMZN/amazon/shares-outstanding https://www.macrotrends.net/stocks/charts/AMZN/amazon/shares... Walmart not borrowing from the market and making a profit, which it returns to investors as a share buy back rather than a dividend: https://www.macrotrends.net/stocks/charts/wmt/walmart/shares-outstanding https://www.macrotrends.net/stocks/charts/wmt/walmart/shares... Also do note that the number of shares issued by amazon per year has remained fairly constant but the value of those shares has increased, so the amount Amazon 'borrows' has increased each year. You raise the question, long term, will it work? It is too early to say right? Amazon dominate cloud and are making a profit now in that area, but other companies have been able to cut in on 'their' market. What will happen to elsewhere if amazon stop subsidising and a new investor subsidised company comes for their cheese? Amazon shares are very high on the the expectation that market share has been permanently bought. How deep is the moat?
moh_maya 5y ago
So, price to consumer may not necessarily the only metric of consumer harm that one must consider. Another thing that is unique to large corps (Reliance, Amazon) is the network / conglomerate leverage they can bring to bear. Hina Khan's argument against Amazon resonates here too. To quote from the work [1] that (I think) put her on the tech-regulation radar: 'This Note argues that the current framework in antitrust -specifically its pegging competition to "consumer welfare," defined as short-term price effects -is unequipped to capture the architecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price how integration across distinct business lines may prove anticompetitive' [1] https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=5785&context=ylj https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?arti... [pdf]
- lupire 5y ago
  It's not a novel idea. It's the EU legal model (but not the US model).

by shubb 5y ago

AvocadoPanic 5y ago

In the end it's very generic. All the retail and dining options begin to look the same everywhere. There's very little actual expertise or knowledge left as everything comes down from corporate and there's no no sign of knowledge or expertise there. Much of the food isn't cooked as often as it's reheated and assembled. Also the local mercantile class gets hollowed out.

lotsofpulp 5y ago
> Much of the food isn't cooked as often as it's reheated and assembled. Why would this be a function of large business versus small businesses? It seems like a function of the food’s sale price.

pkphilip 5y ago

A typical retail store - especially a mom and pop store, will only be able to buy limited quantities of products. For instance, 50 packs of biscuits etc.. these sorts of volumes are too small for a manufacturer to ship directly to retail establishments because transport logistics will add a huge cost to each such shipment. Consider, for example, that a shop in Bangalore needs to buy 50 packets of biscuits for sale each week from a manufacturer in Pune. Each such shipment will cost at least a few 100 rupees for transport from Pune to Bangalore once a week. This will push up prices a LOT. The way around is for the manufacturer to have a relationship with a distributor in Bangalore and they will ship several tonnes of biscuit packets (1000s of packets) once every couple of weeks from Pune to Bangalore. This is much cheaper from a logistics standpoint. So having distributors reduces the cost overall and distributors also take back expired products, handle returns etc.

froh 5y ago
In some countries retailer's cooperatives are the backbones of many mom and pop stores. They are large towards the manufacturer and are de facto non profits for the co-owner-shareholder co-op member shops, large and small. EDEKA is a large German one. https://en.m.wikipedia.org/wiki/Retailers%27_cooperative https://en.m.wikipedia.org/wiki/Retailers%27_cooperative
- throwawaysea 5y ago
  This is also true in the US for independent grocery stores in many regions. They don’t have the capital and buying power of major chains, but are able to exist by teaming up.
- pkphilip 5y ago
  Whichever way you do it, the distribution process will add to the final price because someone needs to pay for transport to the city, distribution to the retail stores etc. A non-profit may only charge enough to cover their cost but it is nonetheless an additional step in the supply chain. However, it would still be cheaper than attempting to send products directly from manufacturers to retail customers in a completely different city.

piva00 5y ago

> But it may also be Reliance cross subsidizing from its retail business - selling at a loss in order to force rivals out of the market. > That would be an amazing play because they can destroy the existing distribution channel, then replace the small shops at the end of it in a few years by rolling out their own small stores with very low prices and while increasing the wholesale price they now control so the family owned small stores can't compete. Wouldn't this be considered anti-competitive behaviour by most antitrust legislation? Price dumping to force competitors out of the market is a big no-no as far as I know but I might be absolutely wrong as a layman.

shubb 5y ago
Maybe it is, but it happens in other contexts. Here is a not very good article about it in the US: https://www.nytimes.com/2021/06/08/technology/farewell-millennial-lifestyle-subsidy.html https://www.nytimes.com/2021/06/08/technology/farewell-mille...
msh 5y ago
I think that depends on the country, so I guess that depends on local indian regulation. In my country its legal if the company does not have a dominant position in the market.

lab76 5y ago

The app is a very big deal. That never existed before. Real convenience for the shop keeper. At my corner Kirana (easily serving 500+ ppl), there is a non stop stream of sales guys and delivery vans and the shop keeper has two guys full time just to deal with it. They run around with reams of paper the whole day. Now it's all in the app which is a good thing. Buying stuff from 20 different distributors is just asking to be optimized. I am sure the data they are collecting is also going to produce lot of value.

Jansen312 5y ago

Established market player can go below cost also. But they choose not to. They have plenty of inefficiency built in due to legacy baggages like less productive older workers or unions. The competition from startups are welcome boon to destroy older players way of doing things. I won't expect the traditional player to die out. In America you can still find mom and pop shops even though 90+% decimated by the big boxes like Walmart or Amazon. NY Yellow bacs still surviving and to large extend has improved significantly their customer services after Uber and Lyft established themselves. Nokia is also a good example where they didn't opt for better UI and OS after decades of dominance though people usually wont recognized Apple as "startup" in mobile market back then.

mschuster91 5y ago
> They have plenty of inefficiency built in due to legacy baggages like less productive older workers or unions. "Less productive older workers" deserve jobs, too. And unions are no "legacy baggage", but vital tools to ensure decent workplace conditions and wages (see e.g. Amazon and pee bottles). > In America you can still find mom and pop shops even though 90+% decimated by the big boxes like Walmart or Amazon. Ask people in rural areas what they miss most and the answer will almost universally be shopping opportunities, as it is extremely hard to compete against Walmart and shopping malls. > NY Yellow bacs still surviving and to large extend has improved significantly their customer services after Uber and Lyft established themselves. At the cost of taxi drivers who went as far as committing suicide as the price of their medallions fell through the floor (https://www.nytimes.com/2018/12/02/nyregion/taxi-drivers-suicide-nyc.html https://www.nytimes.com/2018/12/02/nyregion/taxi-drivers-sui...). Price dumping always has follow-up costs that are externalized to society at large.
- ryanlol 5y ago
  > At the cost of taxi drivers who went as far as committing suicide as the price of their medallions fell through the floor (https://www.nytimes.com/2018/12/02/nyregion/taxi-drivers-sui https://www.nytimes.com/2018/12/02/nyregion/taxi-drivers-sui...). Some upset taxi drivers is a perfectly acceptable cost, let the healthcare system worry about preventing suicides.

roenxi 5y ago

> This is a big 'problem' in the west too, where venture funded 'startups' can often out compete small scale traditional rivals in price temporarily by providing goods to the market at much less than cost, burning investor money until the rival way of doing things is broken, then jack the prices back up and reap the profits as a local monopoly. I come from a position of extreme scepticism that this strategy can work. In theory I can imagine it, but in practice I haven't seen a follow up like "...as was sen in the case of [practical example". The companies that try this without network effects seem to get crushed - I like to point at Uber. Their loss-making competition seems to be translating into ongoing losses rather than monopoly. Companies with network effects - and I'm thinking FANG companies - generally moved in and took out well established players by being substantially better with innovative new business models. In most cases they were profitable most of the way through their journey.

Retric 5y ago
Amazon is a solid example of burning everyone else out of the market with VC funding. Don’t be fooled by their nominal profits, for retail their making money hand over fist and simply use tax avoidance strategies to turn profits into capital.
- lotsofpulp 5y ago
  They burned everyone out of the market with venture capital funding they got between Jul 1994 and May 1997, at which point they went public? The $8M from Kleiner Perkins in 1995 seems like a small amount to have been possible to burn everyone out of the market: https://www.fundable.com/learn/startup-stories/amazon https://www.fundable.com/learn/startup-stories/amazon Are Target and Walmart and Home Depot and all other retail stores also hiding profits and choosing to report only 2% to 4% profit margins to avoid paying taxes for the past few decades? Could it not be that the retail business has optimized down to low single digit profit margins? Seems like a baseless conspiracy theory.
  - shubb 5y ago
    When a company issues shares to the market, investors who buy those shares are investing in the company, and the company can take that investor money and spend it on equipment, wages, or I guess subsidising goods to undercut the competition. Many companies buy back shares, returning money to investors and increasing the price of their current shares. There are arguments about whether this is a good thing, but the fact remains that Walmart and Microsoft (comparable companies) have bought half and 1/3rd of their shares - returning large amounts of money to investors. This is in contrast to Amazon. Amazon have constantly issued new shares. This isn't a company that took some initial VC money and turned it into profits. As a company that has not been making a profit and has constantly been issuing new shares, Amazon has factually been running on investor cash for 20 years. I'm not saying the investors don't get a good deal. Investors know they are paying for Amazon to build market share by undercutting. I'm just saying what happened. Here is the graph: Amazon borrowing from the market to subsidise its loss making business in order to build marketshare: https://www.macrotrends.net/stocks/charts/AMZN/amazon/shares-outstanding https://www.macrotrends.net/stocks/charts/AMZN/amazon/shares... Walmart not borrowing from the market and making a profit, which it returns to investors as a share buy back rather than a dividend: https://www.macrotrends.net/stocks/charts/wmt/walmart/shares-outstanding https://www.macrotrends.net/stocks/charts/wmt/walmart/shares... Also do note that the number of shares issued by amazon per year has remained fairly constant but the value of those shares has increased, so the amount Amazon 'borrows' has increased each year. You raise the question, long term, will it work? It is too early to say right? Amazon dominate cloud and are making a profit now in that area, but other companies have been able to cut in on 'their' market. What will happen to elsewhere if amazon stop subsidising and a new investor subsidised company comes for their cheese? Amazon shares are very high on the the expectation that market share has been permanently bought. How deep is the moat?

moh_maya 5y ago

So, price to consumer may not necessarily the only metric of consumer harm that one must consider. Another thing that is unique to large corps (Reliance, Amazon) is the network / conglomerate leverage they can bring to bear. Hina Khan's argument against Amazon resonates here too. To quote from the work [1] that (I think) put her on the tech-regulation radar: 'This Note argues that the current framework in antitrust -specifically its pegging competition to "consumer welfare," defined as short-term price effects -is unequipped to capture the architecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon's dominance if we measure competition primarily through price how integration across distinct business lines may prove anticompetitive' [1] https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=5785&context=ylj https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?arti... [pdf]

lupire 5y ago
It's not a novel idea. It's the EU legal model (but not the US model).