[The American company sees big
potential in the country’s nascent e-commerce market. Both sides view a
troubled grocery store chain as the key to success.]
By Aman
Sethi
Ms. Pillai, a 47-year-old retired
nurse, is a regular shopper at Big Bazaar, a low-slung supermarket nestled
beneath a metro station in a middle-class neighborhood in east Delhi. She tried
online shopping last year, during India’s coronavirus lockdown. It didn’t
compare to Big Bazaar, where jars of mango pickle jostle for space with pasta
sauce, while family packs of instant noodles are stacked near giant sacks of
basmati rice.
“I like to see things first,” said
Ms. Pillai, whose shopping trip that day netted her a T-shirt and several bags
of cookies. “Here I can look at the products before I buy them.”
Big Bazaar is owned by an Indian
company, the Future Group, which owns 1,500 supermarkets, snack shops and
fashion outlets in 400 cities in India. That bricks-and-mortar footprint makes
it a prize for companies that, paradoxically, want a piece of India’s
fast-growing technology and e-commerce market.
Those companies include Amazon.
It is betting
big on India,
where it already accounts for about one-third of e-commerce sales.
The American technology giant put
down $200 million two years ago to get first dibs to buy the retail assets of
the Future Group, and it structured the deal to avoid the Indian
government’s tightening
limits on foreign involvement in local businesses.
But that put Amazon in the way of
Reliance Industries, one of the biggest and most powerful companies in India.
It is controlled by Mukesh
Ambani, a tycoon whose holdings include telecommunications, energy and
manufacturing. In August, Reliance shouldered aside Amazon and struck a deal to
buy all of the Future Group for $3.4 billion.
Amazon is now trying to stop the
deal through arbitration proceedings in Singapore. The fight has spilled over
into India’s courts, where Amazon has asked the Supreme Court to halt the deal
until the Singapore arbitration is completed.
Though India’s near-term prospects
have been hit hard by
a coronavirus
second wave, the country promises huge growth potential once the pandemic
ends. Its increasingly connected population and aspirational middle class remind
many global businesses of China, which in a few years became the world’s
biggest internet market by population.
India’s online market is expected
to be worth $85.3 billion by 2024, according to Forrester Research. Facebook, Walmart and
others have joined Amazon in investing heavily in the country.
Online groceries are a small but
growing piece of the market. For now, Indians shop online primarily to buy
fashion products and cellphones. But a chain of bricks-and-mortar stores could
be a valuable asset for conquering the online business, for many of the same
reasons Amazon bought
Whole Foods four years ago to build its grocery business in the United
States. Grocery stores can make handy distribution centers and bring both brand
name recognition and long-term relationships with suppliers.
“No one is fighting on a monthly or
quarterly basis,” said Satish Meena, an analyst with Forrester Research. “This
is a 10-, 15-year game.”
Amazon and other international
companies have found that game increasingly difficult to play, however. Prime
Minister Narendra Modi and his Hindu nationalist government are whipping
up sentiment against foreign forces as part of a campaign to develop
homegrown players in manufacturing, the internet and other industries.
Indian officials have kept silent
about Amazon’s fight with Reliance, but they have pressured the American
company on other fronts. The Reserve Bank of India and the Enforcement
Directorate, India’s federal crime-fighting agency, are investigating Amazon for
suspected violations of India’s foreign investment laws. Amazon and Walmart’s
Flipkart are also fighting
a legal battle to stop the Competition Commission of India, the
country’s antitrust regulator, from pursuing a formal investigation into their
sales practices.
In a statement, Amazon said that
company officials “take compliance with all applicable laws and policies seriously”
and that it was trying to protect its rights in trying to stop the
Reliance-Future Group deal. “We are disappointed by the motivated attempts to
influence the F.D.I. policy with the view to create an unlevel playing field,”
the statement said, referring to India’s restrictions on foreign direct
investment.
Neither Reliance nor the Future
Group responded to emails requesting comment.
In 2018, the Indian
government enacted
a law that said foreign-owned e-commerce companies could work only as
neutral marketplaces where independent sellers placed their products. The
government said the limits would protect small businesses by limiting the
ability of platforms like Amazon to sell their own products. Strictly following
the law would have meant, for instance, that Amazon could not sell its popular
Echo device on its own service.
The Indian government isn’t alone
in its concerns over Amazon’s potentially dominant market power. Officials and
lawmakers in the United
States and Europe have
taken an increasingly dim view of Amazon’s ability to use its data to develop
and sell its own products. Still, the law was widely interpreted as beneficial
to Mr. Ambani’s foray into e-commerce.
“India’s foreign investment laws in
retail didn’t make sense in
the mid-2000s, when they were enacted, and they don’t make any sense
today,” said Arvind Singhal, chairman and managing director of Technopak
Advisors, a management consultancy that focuses on retail and consumer
products. “The laws are protecting local big players in the name of protecting
mom-and-pop stores.”
Against that environment, Amazon
moved cautiously to make a deal with the Future Group. The Indian company was
heavily in debt when it struck its pact in 2019. The agreement was structured
to comply with tough laws already on the books about foreign companies
investing in retail.
The Future Group deal amounted to
an option by Amazon to expand into brick-and-mortar stores in India should New
Delhi ease its retail laws. It also allowed Amazon to use Future’s network of
stores as centers for quickly dispatching fresh fruits and vegetables to
customers ordering provisions online. Before the dispute between the companies
broke out, customers could order vegetables from Big Bazaar stores on the
Amazon app.
But Reliance Industries, Mr.
Ambani’s conglomerate, saw some of the same potential. In an investor call soon
after the acquisition, Reliance Retail’s chief financial officer, Dinesh
Thapar, spoke of a similar strategy of using stores as distribution centers.
Even before the Future acquisition, Reliance used its own network of stores to
ensure that over 90 percent of online orders were delivered within six hours,
Mr. Thapar said on the call.
The winner of the clash between
Reliance and Amazon could have a big say in how e-commerce develops in India. E-commerce
creates ecosystems for smaller start-ups working on payments, logistics,
artificial intelligence and machine learning, said Arun Mohan Sukumar, an
independent technology analyst. Government rules could shape that outcome.
“If the government decides to pick
a winner in the e-commerce domain, that winner will end up picking the winners
in multiple so-called sunrise
sectors,” Mr. Sukumar said.
However the dispute is resolved,
Mr. Ambani’s imprint is already visible in Big Bazaar aisles, where Reliance
Industries’ Good Life variety of beans, peas and lentils have been accorded
prominent place.
“We’ve started stocking a lot more
Reliance products over the past six months,” said Ridh Nath, a Big Bazaar
employee who oversees the groceries section. As the Future Group struggled
under debt, Reliance showed a willingness to supply a credit line for its
products.
Mr. Nath said he had initially been
unsettled by all the conflicting headlines about the Future Group.
“But the company told us not to
worry about the news, just focus on the customer, and that is what we are
doing,” he said.
