Amazon Bets Big on Grocery Delivery, But Road Ahead May Be Tough

Amazon plans to expand its online grocery delivery operations even as homegrown rivals Flipkart and Paytm scale back in India’s $413-billion grocery market.

The focus is on increasing the customer base over the next few years and not chasing profitability, said Saurabh Srivastava, head of the fast moving consumer goods (FMCG) category at Amazon India.

The world’s largest e-tailer’s Chief Executive Officer Jeff Bezos has committed $3 billion to the India business, betting that growing internet adoption will prompt more people to buy online. From food items to toiletries, the e-tailer offers 1.9 million consumer good products across categories in India.

Getting into groceries is tempting for an e-tailer but it’s a tricky segment, said Harminder Sahni of retail consultancy Wazir Advisors.

People don’t even buy food and fruits from the same retailer. The Indian consumer is still not savvy and rich enough to buy online. They will buy from where they will get it cheap.

Srivastava said it’s a habit-forming category. If somebody is shopping for their daily essentials on a website or storefront, chances are they will buy other products as well, he said.

Even as homegrown rivals Flipkart and Paytm have scaled back online grocery delivery operations, Amazon is betting big on the category. (Photo: BloombergQuint)

Multiple Formats

Amazon will build multiple platforms and adapt to local needs, said Srivastava. The e-tailer aggregates and also has an inventory for groceries in India.

For local and on-demand delivery, the company has tied with up mom-and-pop stores and supermarket chains like Big Bazaar, HyperCity and Star Bazaar. 

While sellers stock items like soaps to butter and decide the prices, the e-tailer delivers them by taking orders via the Amazon Now app.

Amazon also allows sellers on its marketplace to stock products at its warehouses for a charge, and delivers them through its ‘Amazon Pantry’ and ‘Subscribe & Save’ services.

Three months after its launch, Amazon Now promises two-hour grocery delivery in Delhi, Hyderabad and Mumbai. Amazon Pantry, which guarantees next-day delivery, is available in 29 cities.

Saurabh SrivastavaWe want to offer the biggest selection and if that means building four formats, we will do that. If it requires 10 more services, we will innovate and build those services.

More than half-a-dozen grocery delivery startups shut shop last year. (Photo: BloombergQuint)

Grocery Delivery Too Big A Bite?

More than half-a-dozen grocery delivery startups shut shop last year as they ran out of cash to acquire customers.

In 2015, Flipkart shut its delivery service ‘Nearby’ within five months of launch while Paytm wound up its Paytm Zip two months after rollout.

The business model they followed was not right, said Ankur Bisen, senior vice-president at management consultancy Technopak Advisors. Aggregation or simply tying up with nearby vendors does not work in grocery delivery, he said.

To succeed, Amazon will have to maintain margins, said Anirudh Damani of Mumbai-based venture capital firm Artha Ventures that has backed dairy delivery startup SuprDaily. Amazon cannot always burn money to acquire customers, he said.

It is easy to do FMCG business in the US because the sourcing and grading of products is easy. The concern here is how do I source the best material and sell at a price where I am unit-economics positive, unless you are willing to lose money.

(This article was originally published on BloombergQuint)