Livemint: July 28, 2017
New Delhi: Amazon India plans to aggressively invest in growing its grocery and food business, launch more categories and products and forge alliances with large offline grocery and supermarket chains as the online marketplace looks to beat arch-rival Flipkart, which is expected to launch its own grocery offering over the coming weeks.
In an interview, Amazon India’s consumables business head Saurabh Srivastava said the company would launch its grocery offering in more new cities over the coming months. Currently, Amazon’s grocery and pantry business is available in over 30 cities.
“We launched consumables in June 2013, but two years before that when we started working on building out the India business, it was very clear that we wanted FMCG to be a big part of Amazon India’s offerings from the very beginning,” said Srivastava, director of category management for Amazon India’s FMCG (fast-moving consumer goods) business.
“The growth of the (grocery) business has been very good so far—in terms of units, we are the largest category on the (Amazon India) platform, and in terms of growth, we are one of the fastest growing (businesses),” he added.
Amazon India recently got the government’s approval to retail food products in India, which potentially allows the e-commerce giant to create a full-fledged food retail business and sell food products through its wholly-owned unit in India. Amazon has proposed to invest at least $500 million for its food retail business in India—a proposal that has been approved by the Department of Industrial Policy and Promotion (DIPP).
According to an executive aware of Amazon India’s plans, the company may launch a new private label to delve deeper into the grocery business—much like BigBasket. Even arch-rival Flipkart, which is expected to launch its grocery business in the coming weeks, plans to launch a private label when it enters the segment.
Srivastava declined to comment on whether Amazon would launch a private label for its grocery business, but said that the company would look to build out an end-to-end food retail business in India.
“The food ecosystem needs investment, technology and infrastructure—and since the government was interested in making sure that companies come in and invest in (building) that, we believe that there is value that we can add as a strong technology company,” said Srivastava.
Amazon first launched its grocery offering in February last year in Bengaluru through its Amazon Now mobile app, as part of a strategy to take on hyperlocal grocery delivery businesses such as Grofers. Since then, Amazon has tied up with retailers such as Big Bazaar, Reliance Fresh, Bharat Petroleum In and Out, Godrej Nature’s Basket and Food World, among others. Amazon also set up Kirana Now in 2015, wherein the firm partnered with local kirana (neighbourhood grocery) stores for delivery.
Large online marketplaces have so far struggled to successfully crack the grocery business, according to experts such as Harminder Sahni, founder and managing director of Wazir Advisors.
For instance, Flipkart was forced to shut its grocery app Nearby in February 2016, barely five months after it started testing the service. Digital payments unicorn Paytm also shut down its grocery service in 2015, citing poor demand.
“If you look at the past decade, most large supermarket and grocery chains have struggled to build out proper supply chains and create sustainable businesses. Having said that, Amazon is probably the best placed to succeed in this category. They have deep pockets and they’ve already made inroads through Amazon Now and programmes such as Prime,” said Sahni.
However, over the past two years, with the expansion and relative maturity of the e-commerce market in top-tier cities in India, large online marketplaces are betting that the grocery business is poised to take off in a big way.
“We think this category will mostly have value in top cities—it is an offering that customers in those cities would appreciate—that’s how we’ve looked at it,” said Srivastava.
Amazon’s rapid foray into the grocery business over the past one-and-a-half years prompted Flipkart to also rethink its strategy on a business it had abandoned earlier.
According to at least two Flipkart executives who declined to be named, CEO Kalyan Krishnamurthy charted out a clear strategy in late 2016 to tap into the grocery segment and pushed company executives to roll out the business by the middle of 2017, not wanting to concede too much headway to Amazon India.
“We have seen strong growth from tier-2 and tier-3 cities—in fact, a big chunk of our subscriptions is going to those cities,” said Srivastava. “Over the last 14-15 months, we have collected a lot of data and we know that customers need this category. So, we’ll keep adding more selection over the next few months.”
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.