Why Flipkart has to worry about a lot more than Amazon buying BigBasket

Across ecommerce, cloud services and entertainment, Amazon already has a broader ecosystem, and its Whole Foods play shows it is willing to audaciously go offline. That, as local rules change, is plausible in India too

Harichandan Arakali
Updated: Jun 18, 2017 12:21:03 PM UTC
Image: Reuters /Pascal Rossignol

BigBasket has proved that smartphone toting people in India do buy groceries on an app, and ‘at scale’ as entrepreneurs always like to say. Even if with expensive help from celebrity endorsements such as Bollywood superstar Shah Rukh Khan.

And yet, a lot more people, in fact the majority of us, still do continue to jostle with each other for parking space for our vehicles so we can endure standing in the one queue where the customer four heads further up the line has chosen the very day for a month’s worth of supplies.

Amazon knows just how much people buy their food and supplies offline — even in the most advanced of economies. It just agreed to spend $13.7 billion to buy Whole Foods, a 460-store chain in America. Think what it might do in India when opportunity knocks, where it is already an entrenched ecommerce presence, and where it has entered the groceries business ahead of market leader Flipkart — albeit only as a delivery service, because of India’s rules on retail.

That, however, could change as the rules are changing. For instance, India now allows 100 percent foreign direct investment in businesses selling locally processed food. And Amazon is said to be seeking approval in India of its plan to sell food and groceries directly to consumers online.

Buying Supermarket Grocery Supplies Private Limited., the company that operates BigBasket, India’s largest online grocer, if the reported rumours of such a deal are true — and an Amazon spokesperson declined to comment, when this writer contacted the company — will only be one aspect of Amazon’s plan for selling groceries in India. It is not unconceivable that when the rules change in India, Amazon will be ready to go offline here as well.

For now Amazon’s groceries play in India is limited to its Amazon Now app-only option. Download and install the app, use it to order what you want and Amazon India’s delivery people will pick it up at your friendly neighbourhood supermarket and deliver it to your doorstep. Amazon’s app product page promises two-hour delivery in some locations in Bengaluru, Delhi and the National Capital Region, Mumbai and Hyderabad.

And its supermarket partners include Big Bazaar, Food World and various other chains and local supermarkets. For a moment, leave groceries aside. One could argue that Amazon already has a broader ecosystem in India than Flipkart when it comes to the various ways people deal with it. For instance, Flipkart has nothing to match Amazon’s Prime Video service, which has just launched a locally produced Amazon original, with actor-director Farhan Akhtar. Expect more.

Flipkart, had once boldly launched a music download service with its digital store Flyte, but didn’t persevere with it, and shut it down after about a year, in 2013. Flipkart’s top executives know very well that the most affluent of its, and Amazon’s, customers also tend to be a segment for which books are important. And again, Flipkart has nothing to offer that can compete with the Kindle service. Here, too, Flipkart didn’t persist with an eBook reader it had built before Amazon’s entry into India.

And on the enterprise front, Flipkart, even after its latest funding-based strategic partnership with Microsoft, will have nothing to compete with Amazon Web Services. For now, that aspect is probably only tangentially relevant, but if Amazon decides to build a bigger portfolio of cloud-based services for individual consumers globally, which it can be expected to bring to India as well, Flipkart just doesn’t have the wherewithal to compete there.

Amazon’s services will be tightly integrated with one consumer needing one account across services — much like with Google. Flipkart’s main offering will remain the ecommerce business. That is why, if they lose in groceries, they will be out of reckoning for good. And certainly Flipkart’s entry into groceries is imminent, a launch for which the company has been preparing for over a year on a war footing.

Which brings one back to BigBasket. “If anyone has solved some of the problems of online groceries retail in the Indian context, it is BigBasket,” one executive in the ecommerce industry who’s kept a close eye on the company’s rise told this reporter, and didn’t want to be named. Therefore, if Amazon indeed buys BigBasket, it will be a bit of a coup even as Flipkart launches groceries.

BigBasket has denied it is talking to Amazon according Bloomberg, which reported the two were in talks, citing people familiar with the discussions, in a report on June 13. BigBasket is reportedly looking to raise as much as another $150 million in a deal that could make it one more Indian unicorn. Tencent Holding, which participated in the recent $1.4 billion funding at Flipkart has also been reported among potential investors in BigBasket.

On the possibility of Flipkart itself being a potential suitor for BigBasket, the ecommerce company’s CFO Sriram Venkataraman told Forbes India recently that “at this point in time” their strategy is to go it on their own. And he declined to comment on if that could change in the future.

For now, local regulations are aimed at protecting the mom-and-pop stores that make up the bulk of India’s retail — a business that is estimated by the India Brand Equity Foundation to hit a trillion dollars by 2020. But, even if very painfully, the direction that India has been headed in over the last 25 years will remain — towards becoming a more open and global economy.

That means, in the foreseeable future, local rules will become easier for Walmart Stores, Ikea, Tesco, and Amazon. Flipkart has its job cut out.

The thoughts and opinions shared here are of the author.

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