What does Amazon’s latest bet mean for India’s grocery biz?

What does Amazon’s latest bet mean for India’s grocery biz?
Photo Credit: Photo Credit: Reuters

US e-commerce behemoth Amazon appears to have made another move to expand its grocery retail business in India and intensify its competition with local rival Flipkart, which is also looking to beef up its presence in the space following its $16-billion acquisition by American retail giant Walmart.

On Wednesday, Aditya Birla Retail Ltd (ABRL) agreed to sell its food and grocery retail chain More to an entity controlled by private equity firm Samara. A person familiar with the development told VCCircle that Amazon will own a minority stake in the retail chain via the deal, pegged at an enterprise valuation of Rs 4,200 crore, according to media reports. 

To be sure, Amazon has not made any official statement in this regard and emails sent to an Amazon India spokesperson did not elicit a response till the time of publishing this report. 

But how would this deal change the dynamics of India’s grocery business?

Hari Menon, co-founder and chief executive of online grocery leader BigBasket, feels nothing will change right away. 

“There is not yet enough clarity on how they want to utilise this partnership,” Menon told TechCircle. “Whether it is going to be an omnichannel strategy or supply chain strategy is yet to be seen.”

ABRL, part of the diversified conglomerate Aditya Birla Group, runs 523 supermarkets and 20 hypermarkets under the More brand, its website shows. It is the fourth-largest supermarket chain in the country after Reliance Retail Ltd, Future Group and D-Mart.

Amazon had earmarked $500 million for its local food business last year and started rolling out its food retail venture in India this year to sell third-party items as well as Amazon's food products produced and packaged locally.

Amazon's grocery app, Prime Now, already has a tie-up with More stores for procurement. However, after getting permission to start a food-only retailing business in India, Amazon had started its own inventory centre as well and renamed and relaunched the Amazon Now app to Prime Now.

The Now service earlier partnered with local stores such as BigBazaar for instant delivery.

Arvind Singhal, chairman and managing director of consulting firm Technopak, agrees that there will be no instant impact.

“All of these are building blocks and this is one block and will not have an immediate effect on either of these businesses. These are the blocks that need to be in place for running a successful grocery (online or offline) in India or even in the US and the game plan has to have a physical presence,” he said.

Amazon has deployed an offline-to-online retail strategy in the US with the acquisition of grocery chain Whole Foods Market Inc. for $13.7 billion last year.

In India, it had bought a 5% stake in brick-and-mortar retail chain Shoppers Stop Ltd last year to enhance its offline retail play.

Singhal said that More has not done well and Amazon would likely have to bring in its global expertise to make an impact.

Between 2008 and the year ended March 2017, ABRL clocked net losses of around Rs 5,500 crore, shows VCCEdge, the data research platform of News Corp VCCircle.

More’s poor finances notwithstanding, Satish Meena, senior analyst at Forrester Research, said Amazon’s interest in the chain is along expected lines.

“It is difficult to run a grocery business without an offline presence and a strong supply chain. We expect other e-commerce companies and online grocery companies to follow suit.”

Meena feels the More deal will force Chinese e-commerce giant Alibaba to strengthen its investments in BigBasket and Paytm Mall through offline tie-ups, acquisitions and other partnerships.

A Paytm Mall executive recently said that the e-commerce venture was looking to deepen ties with regional retailers as well as partner with BigBasket. The company already has a revenue-sharing partnership with Future Retail, which owns hypermarket stores like Big Bazaar and fashion shops.

Meanwhile, with wholesale and groceries being parent Walmart’s strong points, Flipkart recently restarted its grocery operations with the launch of Flipkart Supermart stores in Bengaluru.

Technopak’s Singhal said that in a decade from now, online grocery could become bigger than the organised offline grocery business. 

“This is not the case for overall retail,” he said. “The deal has also more to do with acquiring customer data and behaviour. It is for learning purposes with a long-term goal and aligns with their long-term priorities. There are only a few of organised grocery retailers in India and more mergers or partnerships will follow soon.”

Forrester's Meena feels the segment comes down to a very simple dynamic. "When you win grocery, you win households and not just a single customer," he said.