What happens when big tech comes to your neighbourhood grocery store?
With Amazon buying More, India’s fourth largest grocery chain with 523 supermarkets and 20 hypermarkets, we are about to find out.
A couple of weeks ago, Amazon quietly acquired More, which belongs to the Aditya Birla Retail Group. Although Amazon did not immediately make an official statement on the issue, sources said the transaction was valued at around Rs 4,200 crore. The acquisition is being done through Samara Capital’s Witzig Advisory Services, in which Amazon is a shareholder.
In its official statement to the media, Amazon said: “Through this investment, Amazon looks to enhance its services portfolio and meaningfully invest in and create opportunities for skill development and job creation.”
This doesn’t mean we should expect Amazon-branded stores in India anytime soon—the company is running a few ‘experiments’ in that direction, but more on that later—but it will lead to a major strengthening of Amazon’s grocery delivery business in India, an area where most companies have still met with limited success.
Venture capital versus the local sabzi guy
The death of the small sellers has been predicted again and again, with the growth of organised retail, with the coming of malls, and then, e-commerce.
Initially, for Indian e-commerce, books, mobile phones (and other small electronics), and then clothes were the big categories that drove growth as companies like Flipkart and Snapdeal took shape. After that, a lot of companies tried to invest in grocery deliveries.
By mid-2016 though, a slowdown was apparent, and most of these companies would end up broke. Flipkart also launched a local delivery service called Flipkart Nearby and quickly shut it down as well, because customer demand was poor, and the company wasn’t able to make much profit from the business due to the low margins on such household products.
The local grocery store offered faster deliveries, usually extended credit to regular customers so you didn’t have to worry about having cash in hand, and gave you more control over the quality of fresh produce.
In 2016, Amazon launched a two-hour delivery service called Amazon Now (which is now called Prime Now), as the other companies were folding. And although the company has not released figures on how many customers it has, the app has over 5 million (50 lakh) downloads on Google Play. In May, Siddharth Nambiar, head of Prime Now, said that the quantities ordered have been growing at 90% monthly.
And then Amazon had a stroke of luck—in November 2016, the Modi government announced demonetisation, and while the biggest beneficiaries appeared to be digital payments companies, buying groceries with cash suddenly became a pain point.
Companies like BigBasket, Grofers and Amazon found customers who didn’t want to deal with long ATM lines, even if it meant paying slightly higher prices at times.
“What these companies were able to do, after demonetisation, was build a habit,” said Saravanan K, a Bengaluru-based startup consultant. “That’s the biggest challenge—you can spend some money to get the customer to try out your app, but getting them to use it subsequently until it becomes a habit is a huge struggle.”
Manjunath, a vegetable seller in his 40s in Bengaluru’s HSR Layout area, full of startups and tech-workers, said that his daily income is around Rs. 2,000. Speaking through an interpreter, Manjunath explained that if a day goes badly—say, there’s a lot of rain and people don’t come out to buy vegetables—then he ends up losing money and has to take loans for the next day. Over the course of a month, if all goes well, he stands to save only around Rs. 1,000.
When asked if fewer people have been coming to his stall, he said that while the last year or so has been mostly stable, the big change really happened with demonetisation.
“I had to take a big loan then, and I was paying it back for a full year, it was very difficult, my wife also had to ask her family to give us some money,” he said.
That’s the difference between a small seller like Manjunath and a giant business like Amazon. According to sources in the industry, Amazon has paid a premium for More, and it can afford to invest billions of dollars to ensure that it stays on top of a market that has just seen the entry of the world’s biggest retailer Walmart. Sources say British retailer Tesco has also launched a renewed effort to find a partner in India. These companies can all bear losses until the billion-strong market opens up, and want to make sure they don’t get left behind by the competition.
“That’s why Amazon is investing in More, Flipkart is also opening new stores. This is a move towards making customers buy groceries online, and it is a long-term thing. They are trying to figure out what is going to be the best possible way,” said Satish Meena of Forrester Research.
“Frankly, selling groceries online is a little too early in India. We’ve seen companies from 2015, and already for three years, companies have tried to solve groceries online and a lot of them shut down,” he added. “Our market is not mature, and companies like Big Bazaar, DMart and local stores still have a very high piece of the pie. You go to stores like Big Bazaar once a month, and daily to the local kirana store. Buying groceries is not a very painful thing, unlike, say, fashion. Most of the groceries, there is no problem to buy offline, but it’s a complicated process on your smartphone. It’s still early, that’s why Amazon is also trying to push Pantry, and the idea is to move customers to their monthly purchases first, and then move the daily.”
All retail is retail
Today, e-commerce in India is moving offline again. Apart from Amazon, there’s Flipkart, which was acquired by Walmart this year for $16 billion (roughly Rs 11,78,16 crore). Paytm has also talked about the online-to-offline model, along the lines of China’s Alibaba’s T-mall. That’s no surprise, considering that Alibaba is one of the investors in Paytm.
At the same time, major offline chains like Future Group and DMart are also investing in e-commerce. The former has recently launched an online delivery service called Easy Day, which combines physical stores and online ordering.
Former Microsoft executive Steven Sinofsky, who is now a board partner for venture capital firm Andreessen Horowitz, analysed this in some detail on Twitter. He wrote that all retail, whether online or not, comes down to a few common factors. While each new generation of retail has brought changes and disruption within these factors, over time, the lessons from previous generations start to apply, and newer models start to look like the existing ones.
Drawing parallels between the logistics and scale of Amazon and Walmart, the loyalty from Prime and the loyalty cards of consumer giants such as Sears, Amazon Basics and store brands, and so on, Sinofsky argued that for Amazon, the final goal is to become like other retailers.
“Retail is a thing. It gets reinvented and then it re-converges on past best practices. A connected and networked world causes things to converge more rapidly every generation,” Sinofsky wrote.
How will Amazon change More stores?
As of now, the company does not seem to plan any major changes. Of course, any kind of shopping is also an exercise in data gathering. One retail executive who did not want to be named told HuffPost India that the customer’s shopping history is tracked to offer special deals and improve discovery of products. He explained that this happens even if you’re shopping offline.
“When you go into any restaurant or store, they ask for your phone number, right?” he said. “This is for two things. Firstly, if there are deals for you, or maybe your birthday is coming so something special for you, then a message can be sent. But it’s also a unique identifier, that allows us to track your behaviour.”
“The way we use it is pretty harmless, we want to know what you’re shopping for so that we can improve our logistics, and the kinds of deals to offer,” he added. “We’re not giving out this data because it’s got value for us as well, and we’re only tracking what you’re buying from us.”
Amazon has also been investing in a few different types of stores in the US, but despite the investment in More, these new formats are unlikely to come to India anytime soon, experts said.
“What Amazon is doing in the US is they’ve opened a bookstore, and the four-star store [which showcases a wide assortment of highly rated products on Amazon], and the Amazon Go store [where there are no checkout lines; you’re tracked by cameras, and automatically billed for things you pick up], but these are all experiments,” said Forrester’s Meena. “The market there is much more mature, we still don’t know what the future of those experiments is in the US markets, and I don’t think we can think that kind of possibility for India.”