Amazon India Reports Over 105% Revenue Growth In FY17

At a time when Flipkart’s valuation has been marked up by one of its investors Morgan Stanley, the Indian arm of global ecommerce behemoth Amazon has reported over 105% growth in revenue in FY17.

As per filings with the Registrar of Companies (RoC), Amazon Seller Services posted a 41% increase in earning to $485.4 Mn (INR 3,128 Cr) during the said period. Amazon Seller Services currently earns through commissions, advertisements and shipping fees.

Recently, in the third week of November, Amazon India issued paid-up capital of $2.7 Bn (INR 17,839 Cr) towards its marketplace arm Amazon Seller Services, as per its regulatory filings.

Commenting on the feat, a spokesperson for Amazon said, “Comparing like-to-like, the Amazon Marketplace revenue in India grew by 105% for the year ending March 31, 2017. The Annual Returns filings include other line items.”

In addition to earnings from the marketplace and seller commissions, Amazon India currently generates revenue from its Seattle-headquartered parent by way of advertising fees, royalty on sales of Amazon’s in-house brands like Kindle and other transactions.

As per industry experts, the ecommerce giant’s impressive growth can be attributed, in part, to demonetisation which was instituted in November 2016. Speaking on the matter, an online seller on Amazon requesting anonymity said, “Last fiscal, the impact on Amazon was across categories -smartphones to electronics to apparel. These are the largest selling and fastest growing segments in e-commerce.”

According to some, however, Amazon’s growth in sales slowed down considerably after the Indian government’s Department of Industrial Policy and Promotion (DIPP) cautioned online marketplaces against deep discounting in April 2016.

A report by Hong Kong-based Counterpoint Research, for instance, states that the online sales of smartphones and other gadgets stagnated last fiscal after a three-year period of steady growth. Online smartphone sales increase merely by one percent to 32% in 2016, which the study ascribed to demonetisation, lower discounts and uniform pricing across online and offline platforms.

Another factor that has contributed to the slowdown pertains to the new FDI guidelines issued by the DIPP last year. Formalised in March 2016, the stricter guidelines on ecommerce dictate:

• An ecommerce entity would not permit more than 25% of the sales effected through its marketplace from one vendor or their group companies.
• Ecommerce entities providing marketplace would not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.

Consequently, Amazon India’s biggest seller Cloudtail stopped the sale of mobile phones on its platform in September 2016. Prior to that, smartphones contributed towards a significant portion of Cloudtail’s revenues. As per the earning report posted recently, Cloudtail recorded a 24% jump in its revenue for FY17, showcasing a net revenue of $883.1 Mn (INR 5,688.7 Cr).

However, this is significantly less compared to the 300% surge to $712 Mn (INR 4,586.9 Cr) the vendor reported in FY16. Cloudtail currently competes with Flipkart’s biggest vendor WS Retail, which posted a net revenue of $2.16 Bn ( INR 13,921 Cr) in 2016. The financial report for FY17 has not yet been filed by Flipkart.

Most recently, with the implementation of Goods and Services Tax (GST) in April 2017, Amazon India also had to suspend its invite-only Platinum Seller Program (PSP).

While changing regulations are making it more difficult for ecommerce platforms to sustain business growth, Amazon remains focussed on its aim to capture the Indian market. To that end, the online marketplace recently doubled its authorized capital to $4.74 Bn (INR 31,000 Cr), matching its earlier capital commitment of $5 Bn made in June last year. With the goal of getting ahead of rival Flipkart, the company is also doubling down on its efforts to diversify its business.  On the one hand, it is getting ready to enter the online food retail and grocery market, while on the other hand, it is eyeing a piece of the Indian digital payments pie with Amazon Pay. The strategy seems to be working, given that it clocked over 105% growth in FY17.

Strict FDI rules take a toll on Amazon’s largest seller Cloudtail

Amazon India’s largest seller Cloudtail crossed the Rs 5,000 crore sales mark in the year to March but growth tapered off significantly, indicating its fading role as the company seeks to comply with foreign direct investment (FDI) rules on marketplaces.

The government said last year that it will not permit a single vendor to account for more than 25% of sales on an online marketplace that has overseas investment.

Cloudtail, a joint venture between Amazon Asia and Infosys founder Narayan Murthy’s personal investment vehicle Catamaran, posted over a 24% jump in revenue to Rs 5,688.7 crore in FY17, according to its annual return. 

That’s against a 300% surge to Rs 4,586.9 crore in the previous year when it accounted for over a third of the sales on Amazon's shopping platform in India. 



“With the restriction, it was very clear that growth had to be moderated. But Amazon would still prefer to channel their goods through a seller where they can control margins and inventory,” said Devangshu Datta, CEO, Third Eyesight, a consultancy firm. Amazon India declined to comment. Cloudtail didn’t respond to an email. 

Cloudtail's numbers pale in comparison with Flipkart's biggest seller WS Retail, which posted sales of Rs 13,921 crore for the year ended March 2016. It hasn't filed a financial performance report for the last fiscal yet but Flipkart has also been reducing its dependence on the seller, in which its founders used to own a stake.

After the government's guideline, which ecommerce companies had to comply with by March 31, 2017, Cloudtail almost stopped selling mobile phones a year ago but continued with Amazon private labels in India. Smartphones constitute the largest category of India’s ecommerce sales and formed a big part of Cloudtail’s overall sales in previous years.

“With the smaller pace of growth by exiting smartphones, Cloudtail will surely comply with the FDI norms of one seller accounting for 25% of total transactions at Amazon last fiscal itself,” an executive said.

Another seller said Cloudtail’s gaze is on consumables such as FMCG, nutrition, apparel and televisions, which are the next focus areas for Amazon. Personal care, baby care and nutrition are also of interest. It currently sells Amazon exclusive television brands like TCL, Sanyo an .. 

India for status quo on e-commerce negotiations at WTO

In a move that formally counters efforts by members such as the EU, Japan, and Canada to push negotiations on e-commerce at the World Trade Organisation’s ministerial meet in Buenos Aires, India has circulated a draft ministerial decision stating that work should continue as per the current work programme based on “existing mandate and guidelines’’.

“India decided to be pro-active by circulating its own draft on e-commerce ensuring no changes in the current structure of discussions. This was needed to counter several developed members, including the EU and China, that are trying to move beyond the existing work programme and setting the tone for commencing negotiations,” a government official told BusinessLine.

Last month, a group of countries, which included the EU, Canada, Australia, Chile, South Korea and Paraguay, circulated a draft declaration seeking to establish a working party at the Buenos Aires meet and authorising it to conduct preparations for and carry out negotiations on trade-related aspects of electronic commerce on the basis of proposal by members.

“There is no way we can allow negotiations on e-commerce rules to begin at the WTO. It could be disastrous for our country as it could lead to goods coming in without duties through online trade. We want status-quo on e-commerce and that is what we have sought,” the official said.

The eleventh Ministerial Conference of the WTO in Buenos Aires from December 10 to 13 will be attended by Commerce and Industry Minister Suresh Prabhu.

In its draft ministerial decision on e-commerce circulated to all members recently, India has clearly indicated its opposition to move away from the current work programme and the existing mandate under which e-commerce discussions are taking place.

It also instructs the General Council to hold periodic reviews in its sessions in July and December 2018 and July 2019 based on the reports that may be submitted by the four WTO bodies entrusted with the implementation of the Work Programme and report to the next session of the Ministerial Conference.

“We have no issues with discussions continuing on e-commerce as originally mandated and our draft declaration reflects this position,” the official said.

A draft declaration is a proposed agreement that could become an actual declaration if enough members agree with it and relevant changes are made to it to suit all. India’s position is shared by a large number of developing countries and LDCs, including the African Group.

India has also said that a call on the moratorium on electronics transmission should be taken based on the moratorium on TRIPS Non-Violation and Situation Complaints. While the moratorium on electronics transmission allows duty-free imports till the period continues, the one on TRIPS Non-Violation disallows disputes to be filed if TRIPS provisions have not been violated. So far, both moratoriums have been given extensions together.

“Both the moratorium on e-transmission and TRIPS runs out this December. We can support extension of the one on e-transmission if there is no objection to the extension of the moratorium on TRIPS Non-Violation,” the official said.

Global investors heading to India are beginning to make a stopover at Bangladesh

When Waseem Alim, a Wharton graduate, decided to move back home in 2013 and launch an ecommerce company, there was zero buzz around startups on the streets of Bangladesh. Alim hoped to change that. “I realized I had skills that could be used to start a technology-based company in my home country,” he recalled.

From studying online retailers in other countries, Alim realized discounts were a major driver in convincing people to shop online. That, however, would mean high cash burn, not something an internet company in Bangladesh could afford.

So Alim decided to instead start an e-grocery company, which he named Chaldal. “Grocery demands loyalty because of its nature of repeat purchases,” said Alim. Given capital Dhaka’s notorious traffic, a grocery-delivery business made immense sense.

Since then, Chaldal has been a part of the prestigious startup incubator Y Combinator and received an investment from early-stage venture fund 500 Startups. The company’s current annual gross sales, or gross merchandise value, are estimated at $5 million, growing at over 100% every year. 

The rollout of 3G internet in Bangladesh 3-4 years ago led to rapid adoption of online shopping there. The country’s e-tailing sector is expected to grow 70% in 2017, according to RedSeer Consulting. Internet penetration to 40% of Bangladesh’s 165-million population has bolstered the growth of local ecommerce, F-commerce (merchants conducting online business through Facebook pages) and e-grocery startups.

Rocket Internet-backed online marketplace Daraz, Foxconn-backed e-retailer Pickaboo, and Chaldal are among the leading startups in this fairy nascent ecosystem. The size of Bangladesh’s ecommerce market is estimated to be $110-115 million this year, which is a mere 0.7% of the country’s total retail market, according to RedSeer Consulting. To put that in perspective, India’s ecommerce market is estimated to cross $17 billion this year.

The size of Bangladesh’s egrocery market is much smaller at $4-5 million, or about 0.03% of the country’s overall grocery market. Even so, analysts are predicting that Bangladesh’s ecommerce market will surge to $20 billion by 2020, by when, according to Goldman Sachs, India’s online retail market is expected to reach $69 billion.

Bangladesh’s ecommerce market is “nascent but growing— similar to what India was probably seven years ago. It’s a good time for ecommerce players to be entering,” said Shalini Prakash, venture partner at 500 Startups, which has invested in more than 50 companies in India since 2011.

“We are a global fund. So we are looking at founders and startups that are looking to solve interesting problems across the globe for the local market.”

Daraz, founded in 2014, dominates Bangladesh’s ecommerce market, selling electronics, mobile phones, large appliances and apparel. The company is growing at double-digit percentages every month, supplying to customers in neighbouring markets Pakistan, Sri Lanka, Nepal and Myanmar as well.

The opportunity in Bangladesh prompted Delhi-based digital marketing company MoMagic Technologies to launch Pickaboo there last year. “The Bangladesh ecommerce market is close to five years behind the Indian ecommerce market and is around 10-12% of the size of the Indian ecommerce market,” said Arun Gupta, chief executive of MoMagic. “We identified Bangladesh as a potential opportunity and decided to launch Pickaboo.”

Pickaboo, which clocks monthly revenues of $600,000, mostly sells electronics on its controlled marketplace and has plans to add leather accessories shortly.

“When Flipkart was launched, they started selling books first— a category where what you see on the marketplace and what you receive is the same. In today’s world, electronics fall under this category with the probability of difference being low,” said Gupta, adding that Pickaboo has a 20% share of Bangladesh’s ecommerce market. 

International Finance Corporation (IFC), the private sector lending and investment arm of the World Bank, has been tracking Bangladesh’s entrepreneurial ecosystem the past year and is bullish about the market.

It has shortlisted and is actively monitoring 43 startups, including Chaldal topping the list as a potential investee company. 

Chaldal, somewhat similar to India’s largest e-grocer Big Basket, delivers groceries using a network of small warehouses spread across Dhaka. “We launched Chaldal because we felt that there was a need to offer more variety of groceries to our customers,” said CEO Alim. “As the country develops there is a need to provide services that save time for the growing middle class.”

Chaldal competes with Direct Fresh and Meena Click, the online extension of Bangladesh’s 15-year-old supermarket chain Meena Bazaar. Specialising in groceries and personal care products, Meena Click was launched three years ago. The company, which handles 4,000-4,500 orders a month in Dhaka and the port city of Chittagong, said it has doubled its business over the past year.

“The grocery market is huge with limited superstore penetration and we feel that the online model would help us achieve scale that no other player in the market has,” said Alim. The online grocery startup reached out to its counterparts across the world, including Indian companies Big Basket and Grofers, to exchange notes. “The learning has mostly been around what (Big Basket and Grofers) think is important to customers— tradeoffs between quality, speed, etc.,” said Alim.

This also led to a realization that despite the geographical proximity, Bangladeshi startups operated in a different environment.

“Indian players have been able to use capital to get a starting boost. Grofers, for example, for fast-growth by spending on marketing, while Big Basket invested heavily in operations and getting quality right,” said Alim. 

Another aspect about this nascent ecommerce market is that of the total online spending by customers, which is estimated to be about $50 million, 40% of the transactions are through 15,000 small merchants selling through their Facebook pages.

Bangladesh’s ecommerce “ecosystem, instead of developing around one or two big players, has several smaller merchants who sell online,” said Ruchira Shukla, regional lead, South Asia, venture capital, at IFC, which is also an investor in India’s biggest online grocer Big Basket.

Due to Bangladesh’s rapidly growing economy and urban population, IFC believes now is the right time to make some early bets in the country’s startup ecosystem. “The metrics point to healthy growth in Bangladesh… We are looking at some earlierstage investments than what we do in India—most likely at the series-A level financing along with other investors,” said Shukla. 

Bangladesh also has the advantage of a large and homogenous population of 165 million. Because of this, “once the business model is figured out, it can be scaled across several cities and the entrepreneur doesn’t have to worry about differences in language or culture,” Shukla said.

That said, Bangladesh has fewer large and dense cities when compared with India, which poses tough limitations to growth by expansion. 

The market is fraught with several other challenges too. “Logistics and the transportation system are still challenges in Bangladesh,” said a spokesperson for Daraz, which said it has the largest delivery network in the country, with its own fleet operating in 20 cities. “Also, the stagnant traffic hampers fast delivery of products.” 

Educating customers is also an uphill task. Alim recalled being at the receiving end of “a lot of snarky remarks related to a Wharton education going to waste on becoming a grocer. People still think that I might end up doing something ‘real’ later in life.” Consumer brands, too, used to be skeptics. “When we started Chaldal, we could not find good pictures of the products we were selling (for a catalogue) and companies like Unilever were not helpful in providing us with pack shots,” said Alim.

Then, he had his light-bulb moment.

The Chaldal team rented out a small grocery for two hours to click pictures of all the items it stocked to build their online catalogue.

“Basically, we paid some money to keep the store open for an extra two hours and set up a photo studio inside. The pictures looked horrible but at least we got them up on a website.” 

Another big challenge lies in how to turn around the market despite a shortage of capital. This has forced some companies to resort to capital-efficiency to survive.

“Part of the capital-efficiency comes from us having very little capital available in the ecosystem— we have had to innovate significantly beyond the practices in the Indian market,” said Alim, who took inspiration from Big Basket’s warehouse to start their own in Dhaka. Chaldal now has five small warehouses and one sourcing hub in Dhaka. 

COD payments at e-commerce firms back to pre-demonetisation levels

COD payments are higher in Tier 2 and Tier 3 cities as compared to Tier 1 cities where customers are more inclined to pay by card on delivery or make online payments. Photo: Indranil Bhoumik/Mint

New Delhi/Bengaluru: A year after the government’s all-out effort to reduce cash usage and push digital payments after the invalidation of high-value banknotes, cash transactions at e-commerce firms have already returned to pre-demonetisation levels.

That’s an indication that hopes of a transformational shift toward digital payments in the aftermath of demonetisation, which caused an unprecedented cash crunch, are unlikely to be realized in an e-commerce market estimated where, according to Redseer Consulting, transactions reached $14.5-15 billion last year.

Cash transactions, which accounted for as much as 60-65% of all e-commerce orders in India until November 2016, dropped to as low as 45-55% after demonetisation took out 86% of the currency in circulation by value, according to executives at online retailers and logistics firms.

But as cash availability increased starting early this year, many shoppers immediately shifted away from digital payments. Now, cash again accounts for 60-65% of all e-commerce orders, these executives said.

Mint had reported on 8 November that demonetisation has failed to make a dent in cash usage in the Indian economy because of poor digital infrastructure and the ingrained habits of consumers, besides other reasons.

“Cash transactions are back to their old levels, or even higher very slightly,” said T.A. Krishnan, CEO of Ecom Express Pvt. Ltd, one of the largest logistics providers to online retailers. “E-commerce companies are going deeper into the country and in these areas (Tier 2-3 cities), consumers are paying by cash. Eighty percent of our deliveries are paid (for) with cash.”

According to Krishnan’s estimates, some 70% of all e-commerce orders currently are paid for with card or cash on delivery.

“We see no positive shift towards credit or debit cards and the COD (cash on delivery) orders have gone back to old levels. In smaller markets (Tier 2 and 3 cities) this number is up by 5-7 (percentage points),” said Abhishek Chakraborty, executive director at DTDC Express Ltd, a logistics firm.

DTDC ships close to 1 million orders a month. The firm had seen prepaid orders touch about 70% of the overall e-commerce business soon after demonetisation, and this number is now back to about 60%.

Hyperlocal delivery firm Shadowfax Technologies Pvt. Ltd said it has also seen a jump of 5 percentage points in COD orders in the last three months. Shadowfax is one of the biggest external logistics providers to online food and grocery delivery companies.

According to Sanjeev Kathuria, CEO of courier firm Dotzot, COD orders saw a sharp fall after demonetisation but returned to normal levels soon after.

“The overall orders for the e-commerce industry saw a dip post November 2016 but we have not seen people switch to credit or debit card transactions, as was anticipated,” Kathuria added.

Flipkart and Amazon India, India’s two largest online retailers, have seen a slight decline in the proportion of cash orders delivered by their own logistics units, executives at the companies said on condition of anonymity.

Flipkart and Amazon, which also use third-party logistics providers, have been pushing customers to use their digital payment platforms, PhonePe and Amazon Pay, to pay for orders. But on an overall basis, a large number of their orders still continue to be paid by cash.

Flipkart declined to comment for this story. Without giving numbers, Amazon India (Amazon Seller Services Pvt. Ltd), the second-largest e-commerce firm, said the proportion of its cash orders has reduced this year compared with the levels before demonetisation.

“Due to the demonetisation in November 2016, people began to adopt electronic payment methods resulting in reduced cash usage. While cash began returning by end of Q1FY17, by then, we had taken several initiatives to encourage digital payments include providing point of sale machine delivery agents and supporting customers in making electronic payments when they deliver across thousands of pin codes across the country. COD (cash on delivery) share in Tier 2/3 cities is higher than Tier 1 but the gap is narrowing, as a result of our initiatives to drive electronic preference,” an Amazon spokesperson said in an email.

E-commerce versus kirana: Ambani crafts another wave of disruption

Reliance Industries chairman Mukesh Ambani is the man who has his finger on the pulse of Indian consumer. In a speech at the Economic Times Awards for Corporate Excellence recently, Ambani said when the fashion was to invest abroad, Reliance took a contrarian bet to invest Rs 3.5 lakh crore in India and that has paid off handsomely. 

Ambani was talking of his telecom venture, Reliance Jio, that disrupted the sector with freebies and a flood of cheap data. 

After the smashing entry of Reliance Jio, Ambani is making another contrarian bet. When retail companies are logging into India, Ambani is betting big on Bharat. Amazon and Flipkart may be putting billions of dollars in e-commerce wars, Ambani plans to ride high on the corner shops—the small kirana stores. 

For the retail biggies, the mom-and-pop stores could be dying but for Ambani they are an ambitious business opportunity. For his retail foray, Ambani is neither spending money nor dirtying his hands with delivery issues. All he plans to do is link manufacturers and kirana stores to his Reliance Jio customers and mint money. 

Reliance Jio will offer its subscribers digital coupons to buy goods at Kirana stores at discounted rates. It will not spend its own money on discounts. It will only mediate between manufacturers and kirana stores to benefit its subscribers. While manufacturing brands will get free publicity, kirana stores will have more customers. And it will be an effective way to add and retain subscribers for Jio. The company is running a pilot project of this scheme in Mumbai, Chennai and Ahmedabad before it rolls out the scheme next year. 

Small kirana stores are seen as a threat by e-commerce companies, but Ambani views them as an opportunity. In an age when the digital and brick-and-mortar are mostly seen as two opposing models, Ambani seeks to combine them in an innovative way using technology, e-cash, coupons and telecom userbase. 

Mukesh's father, legendary businessman Dhirubhai Ambani, used to say if you made a phone call cheaper than a postcard, you would revolutionise the lives of millions of Indians. After realising his father's dream by not only making a phone call totally free, but also making a handset, JioPhone virtually free, Ambani is all set to ride the digital revolution. 

When he began offering free data to Jio customers last year, Ambani must have realised how telecom could open for him the big doors into the Indian retail market. 

Jio’s cheap data opened up a vast market for Ambani with which it can play in diverse ways. E-commerce is only 3-4% of India’s $650-billion retail industry. Organised retailers hold just 8% of it. Small kirana shops make up the remaining 88% of the market. It is this market that Ambani is accessing through his telecom foray. 

Bharat, he knows, is still bigger than India. Rather than trying to pull it online, what Ambani is doing is taking the online shoppers to Bharat, the traditional retail sector, that is. After telecom sector, now the retail players should get ready for a wave of disruption. It's not just retail players who should be afraid of Reliance Jio's new foray into retail. It will give tough competition to digital wallets such as Paytm, Mobikwik and Phone Pe too once it has developed its own retail network. 

Online groceries is a tough nut to crack. So why are India’s e-commerce giants obsessed with it?

The next frontier for the great Indian e-commerce battle could be shampoos, cereals, fruits, and vegetables.

Despite a failed attempt two years ago, India’s largest homegrown e-commerce major, Flipkart, is once again experimenting with online grocery retail with a service called Supermart. The company is currently running Supermart in a pilot stage for its employees in Bengaluru. “We intend to scale it (Supermart) up to all customers in Bengaluru and take it to other cities in (the) future,” a Flipkart spokesperson told The Economic Times newspaper. Flipkart did not respond to an email query seeking details about the service.

Flipkart’s move into the segment comes over 20 months after its fierce rival Amazon India launched grocery sales in February 2016. This is one of the “fastest-growing categories for” Amazon, a spokesperson said.

The two giants queuing up for online grocery retail is a bit odd, especially given the fact that the segment has seen a high number of casualties over the last couple of years, and that the companies that did survive have struggled to grow. For example, Gurugram-headquartered Grofers has had to downsize its business, its one-time competitor PepperTap closed down after just 17 months, and other pilot projects have failed.

But, if executed properly, getting into the pantry could be the next growth lever for Flipkart and Amazon India. “E-commerce grocery shopping is expected to grow rapidly, particularly among the digitally-centered millennial generation. Consumers are beginning to change where and how they buy groceries, and multi-channel supermarkets have to meet these emerging needs,” said Anindya Ghose, a professor at New York University’s Stern School of Business. “If an e-commerce retailer is not jumping on board the grocery train, it may not be around to catch that ride a year or two later.”

Why groceries?

In the first wave of e-commerce growth in India, electronics and apparel emerged as the high-growth segments. Companies could attract customers with deep discounts, easy payment schemes, and by bringing international brands within their reach.

But grocery has remained largely untapped. “Even after 15 years of e-commerce in food retailing, we’re talking about at best 3-5% market share (of overall food retail), compared with 50% in travel or 35% in electronics in mature markets,” Ghose said. This leaves huge headroom for growth.

Moreover, grocery retail is a high-volume business, since customers shop for items like bread, flours, and cleaning supplies weekly or monthly, but buy new phones or large electronics only once in a while.

“If you want to transform a person’s shopping experience you need to look at where a customer spends the most time. The answer is FMCG (fast-moving consumer goods) and grocery,” Saurabh Srivastava, director for the FMCG category at Amazon India, told YourStory last month. “Customers interact and engage on a daily basis in this category. You don’t buy a mobile phone or a fridge on a daily basis.”

Amazon’s grocery segment has seen a 250% growth in demand since its launch, Srivastava told Quartz. The company currently offers 1.9 million products in this segment from 9,000 sellers, he added.

Crash and burn

But selling fruits and vegetables online is a very different challenge from hawking smartphones. From wafer-thin margins to expensive logistics, grocery retail has its own requirements, which have led to the death of several startups, including Sequoia Capital-backed PepperTap.

Clocking high growth in a handful of cities, especially metros, is possible. Yet, expanding online grocery retail to a large-enough scale across hundreds of cities is extremely tedious because it requires tying up with local suppliers, hiring hundreds of delivery staff, and ensuring proper storage facilities in each market.

And such attempts have failed in the past in India. In 2015, Flipkart had launched its groceries delivery app, Nearby, as a pilot in Bengaluru. But just five months later, the company shut the business down reportedly due to poor demand and tight margins.

In January 2016, Grofers shut operations in nine cities as it was unable to generate enough demand to sustain its business in those places. And a few months later, the country’s then third-largest online grocery retailer, PepperTap, shut shop despite having raised over $51 million.

“If we were going to stick to our two-hour delivery promise (which was rapidly becoming a key differentiator in the markets for us), we needed to build spare capacity in every one of the 17 cities in which we were present,” co-founder Navneet Singh had said at the time. “Compounded with the necessity for discounts, this meant that the cash we were burning on every single order was increasing rather quickly with no immediate end in sight.”

So, even as Amazon India and Flipkart have cracked the logistics for their existing categories—including delivering to far-fetched destinations—grocery will require them to build separate capabilities.

“Unlike non-grocery retailers, online grocers cannot have a marketplace model for any of their fresh foods. Furthermore, perishability of the products makes it time-bound to be delivered,” Shabori Das, senior research analyst at market research firm Euromonitor International, wrote in November 2016.

Big baskets and coveted customers

All these challenges are unlikely to deter Flipkart and Amazon India. After all, the online grocery retail segment is currently estimated at around $1 billion, with a projected compound annual growth rate of 55% over the next four years.

But the contest could take an interesting turn if either of the giants succeeds in acquiring an existing online grocer, particularly Big Basket. For several months now, there have been rumours about Amazon holding acquisition talks with Big Basket, although the two have so far denied the reports. For Flipkart, unlike the last time when it attempted the venture, there are no financial constraints as the company has over $4 billion in cash in its bank, which gives it room to pour money into its grocery basket, and even make an acquisition.

“The grocery segment is going to be incredibly important for the e-commerce battle in India. Why? Well, because given the much lower margins in the grocery business, if you lose 10% of customers to a competitor’s online proposition, that makes a big difference to your topline,” Ghose said. And going by trends that have played out in the US and Europe, Ghose added, online grocery retail typically attracts the most profitable customers: dual-income households and customers who prioritise convenience over price.

“These are the kinds of customers e-commerce retailers should care about,” he said.

Online Food Retail Dream Of Ecommerce Giant Amazon Hits Another Snag

Ever since Amazon received DIPP’s nod for a $500 Mn investment in July 2017, there has been a lot of buzz about the ecommerce behemoth’s entry into the country’s online food retail market. Originally scheduled for this year’s Diwali, the rollout has reportedly been delayed as the company is striving to keep this venture separate from its online marketplace.

As an ecommerce platform, Amazon currently serves only as an aggregator that connects sellers and buyers. Having won the government’s approval in July this year, the company can now sell  food products manufactured and/or produced in India directly to consumers across most cities.

As per the government’s mandates, however, Amazon and other foreign retailers are not allowed to sell non-food items directly to consumers.

To prevent conflict of business interests, the Government of India has asked Amazon to keep its marketplace and food retail arms completely separate. To that end, the ecommerce giant has been instructed to have separate offices, inventories and accounting systems in place.

Amazon has declined to comment on the development, with a spokesperson informing Inc42, “We have not announced any dates or details about our approval for food retail license and we cannot comment on future plans.”

To comply with the terms set by the government, Amazon will have to move some of its warehouses from Amazon Seller Services to Amazon Retail India. Because these warehouses are currently leased to Amazon Seller Services, new lease agreements will likely have signed by both entities. The company will also have to procure a licence from Food Safety and Standards Authority of India (FSSAI).

Amazon India Bullish On The Online Food Retail Sector

Amazon has been looking to enter the food retail business for quite some time now. In July 2017, the ecommerce giant’s proposal to invest $500 Mn in offline and online food retailing was finally approved by the DIPP.

Both Grofers and Bigbasket have also received the government’s nod for their proposed food retail ventures. Amazon’s arrival in the space will likely give brick-and-mortar retailers like Big Bazaar a run for their money.

According to sources, Amazon will be selling packaged food and groceries on its online marketplace and in third-party offline retail outlets. At present, Amazon Pantry offers food products sourced from online vendors. The company also provides same-day delivery of everyday essentials via the Amazon Now app, which was originally launched in February 2016.

The ecommerce company is looking to delve further into India’s food retailing business, with the proposed launch of a private grocery label. A similar move was made last year in the US, where the company’s private label items are sold exclusively to Prime members.

How Amazon Is Taking Hold Of The Indian Online Grocery Market

Amazon’s efforts to capitalise on India’s growing online grocery market can be traced back to 2015 when the company launched an on-demand express grocery platform called KiranaNow in Bengaluru. Later in July 2016, Amazon India launched Amazon Pantry, a service that offers grocery and household essentials to users across India.

The company first put the investment proposal forward in February 2017. As per the proposal, the ecommerce company would be infusing $500 Mn into its food retail business over the course of five years. At the time, it was reported that the ecommerce giant was planning to undertake “retail trading of food products (produced or manufactured in India) to customers at any location through any channel, offline or online, including ecommerce, across India.”