New Hurdles For Amazon India’s Food Retail Plans

Ecommerce behemoth, Amazon India, has got yet another trouble to address before it can expand its food retail venture in India. This time, it is DIPP (Department Of Industrial Policy And Promotion) which is the roadblock to the expansion of the venture.

As per reports, after Amazon received a nod from the government for its food retail venture in July 2017, the government had asked the company to keep separate equipment, machinery and warehouses for its food products and not to mix or share anything with its marketplace business.

Following this, Amazon has now sought clarification from DIPP to understand if it can share some of the warehouse staff, entry and exit doors at warehouses, barcode machines, trolleys and other paraphernalia for its food-only venture with Amazon.in. Also, it has sought to understand if it can maintain the “segregation virtually”.

After Amazon started its pilot project in Pune in February 2018, the expansion of the venture has been delayed “by months” due to this confusion.

An Amazon India spokesperson, in an emailed response to ET, said, “We are on track to launch the food retail business in India. We have started a pilot with restricted selection and coverage.”

However, the report quoted sources as stating that “at present, the food retail venture is merely an extension of Amazon India’s online grocery retail initiatives Amazon Now or Amazon Pantry. The only difference is purchases are billed in the name of Amazon Retail India, the FDI entity”.

FDI For Food Retail In India

In June 2016, the Indian Government permitted 100% FDI in food retail, including retail through ecommerce. The move was made in a bid to strengthen the sector, provided these items are produced, processed or manufactured in the country.

Amazon first made the investment proposal in February 2017. 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”.

The government had reportedly received investment proposals from three companies – Amazon, Grofers and Bigbasket. These proposals were worth $695 Mn for the retail of food products.

As disclosed by the DIPP in an IBEF report, the food processing sector in India has received around $7.47 Bn worth of FDI during the period April 2000-December 2016.

Initially, reports surfaced that Amazon is planning to roll out its food retail venture around October 2017. But it was delayed as the company was said to be striving to keep this venture separate from its online marketplace, as mandated by the Indian government.

Amazon India In Hyperlocal Space

While plans for food retail have been going slow, the company has been pushing for its hyperlocal delivery, Amazon Now.

Amazon Now will offer fruits, vegetables and dairy products. The customer can choose from various daily essentials to household basics on the app.

Also, the company offers two delivery options: Rush delivery (two hours) and same day scheduled delivery.

Recently, Amazon opened 15 fulfilment centres in Bengaluru, Delhi, Hyderabad and Mumbai to create a specialised network for Amazon Now.

Amazon has committed $5 Bn investment in India and recently, Jeff Bezos recently claimed in a letter to shareholders that its paid subscription service, Prime, added more members in India in its first year than any previous geography in the company’s history. Prime selection in India now includes more than 40 Mn local products from third-party sellers.

As the company continues its tryst in India, Amit Agarwal, Amazon India head, shared that Amazon expects groceries and household products to account for over half of its business in India in the next five years, as it moves to broaden offerings in the segment and foray into areas such as fresh produce.

India’s ecommerce industry is expected to touch $200 Bn by 2026, as per a report by Morgan Stanley. The market reached $33 Bn registering a 19.1% growth in 2016-2017, as per Indian government’s Economic Survey 2018.

As Amazon India looks to have fallen out of Flipkart-Walmart deal, its food retail venture has to come off the ground at the earliest as the Walmart-Flipkart tie up is bound to give a major challenge to the company.