Amazon and Walmart prepare for a face-off in India’s physical retail and online grocery markets, just like in the US

Yesterday, news broke that Amazon was planning to buy a 10% stake in the retail arm of Future Group, an Indian conglomerate headed by Kishore Biyani. The move highlights Amazon India’s ambitions in the brick-and-mortar retail space, and follows its acquisition of a 5% stake in Shoppers Stop last September.

Given that foreign companies are barred from directly investing in India’s multi-brand retail space, as Walmart knows all too well, Amazon has to make its investment through an entity that is registered as a foreign portfolio investor. It is also limited to a 10% stake.

Talks between the two companies commenced in January. The $600 million deal, if it goes through, will be significant for India’s retail market. Future Retail Ltd includes the company’s Big Bazaar, Easyday and Foodhall brand of supermarkets. The companies already have a strategic alliance in place, wherein Amazon sells clothes on its online platform from Future Retail’s fashion brands.

With the deal, Amazon can give Future Retail’s e-commerce and sourcing operations a leg up while gaining access to the latter’s extensive customer base and supply chain network. Amazon wants to expand its grocery businesses in India and a tie-up with Future Retail, which sources a large portion of its sales from the food and grocery segment, can achieve that.

Amazon’s potential consolidation of a multi-channel approach to India’s retail market, with a special focus on grocery, comes hot on the heels of US competitor Walmart’s $16 billion acquisition of Flipkart, India’s largest e-commerce firm. Walmart, which has its own plans for India’s food and grocery market, is also said to be in talks to buy a stake in Future Retail, although sources revealed that Amazon was a frontrunner.

The Whole Foods acquisition

The move echoes Amazon’s retail strategy in the US, where it’s fending off Walmart’s entry into e-commerce by expanding into physical retail.

In June 2017, Amazon agreed to buy Whole Foods Inc, a food supermarket chain with an entirely physical presence, for $13.4 billion. While this was partly an attempt to take on the giant Walmart in the brick-and-mortar retail space, it also showed Amazon’s intent to become a bigger force in the food and grocery market. It realised that there was still a sizeable amount of customers who preferred buying their food in person.

By combining its online and physical presence, Amazon wanted to provide customers in the US with a variety of channels to purchase groceries and other items - just like it plans to do in India. But the plan in the US wasn’t just limited to groceries. It wanted to start selling groceries offline, and then use that as a launchpad for selling everything that is non-perishable to customers.

The battle comes to India

It was clear with Amazon’s counter-offer for Flipkart that Amazon and Walmart are gearing for another faceoff in India. With a lot of cash at their disposal, both companies will exploit a number of retail channels in the race to sales and customer growth. Amazon has already got it’s online grocery business in India off the ground, and now it will look to one-up Walmart and make inroads in the physical retail space.

As has been said before, one thing is for certain. It is Indian consumers who stand to benefit most from this competition in the short term. Not only will all kinds of products be more accessible than ever before, they will be cheaper.

However, the freedom of choice isn’t going to last forever. There will be more acquisitions, and Flipkart and Amazon India will get bigger and smaller players will be eaten up. One company will likely edge the other out. And then we’ll be totally dependent on the winner.