Amazon is set to acquire a 9.5-percent stake in Kishore Biyani’s Future Retail Limited through the foreign portfolio investment (FPI) route.
When Jeff Bezos and Kishore Biyani first met three years ago, they struck a formidable friendship. One was a pureplay offline retailer who commanded a large market share, while the other had built an online shopping empire.
Three years on, the two retailers have taken their association a step further - Amazon will invest an undisclosed sum to acquire a 9.5-percent stake in Biyani’s Future Retail Limited through the foreign portfolio investment (FPI) route. The move will pave the way for Amazon to pick up more stake in Future Group later.
Faced with stiff competition from Walmart – which recently acquired Flipkart - and offline retail, Amazon’s interest in the Future Group is easy to understand. Future Group has more than five million loyalty members, and serves over 35 million customers annually. If that was not enough, Biyani can help Amazon India understand how Indians eat, what they drink and what items they stock their kitchens with. Amazon India, on its part, offers the convenience of shopping online to customers.
“Our narratives change with time and, today, I realise the power of data to stay ahead. We are investing a lot behind data sciences to serve our customers better,” Biyani had said at YourStory's flagship event TechSparks 2018, in October. He also said that over the next five years, Future Group will serve 40 million Indians through a combination of online and offline strategies.
An integration would benefit both the companies. For example, Future Group's 2,000-plus stores could be used by Amazon to deliver food and grocery, and Amazon could also offer customers the convenience of ordering online and picking up from a Future Retail store - something that Walmart beat Amazon to in the US.
For the Future Group, which is faced with tough competition from Reliance Industries’ Reliance Retail, the move opens up the online space.
As Walmart figures out how it can marry data from the cash-and-carry business with consumer data, Amazon has an edge.
Another hurdle here is FDI in multi-brand retail is not allowed in India, . Cash and carry, logistics and single-brand retailing allow 100 percent FDI, but multi-brand retailing has gone through several policy changes since 2013. In 2013, up to 51 percent FDI was allowed in multi-brand retailing and, in 2014, the BJP-led government curbed FDI in multi-brand retailing up to 10 percent through the portfolio investment route.
Amazon also holds five percent stake in multi-brand department store Shoppers Stop.
Amazon could pump more cash into the Future Group to take on Reliance Retail and the bets of international competitors like AliBaba.
YourStory had first reported in October that Bezos will look for a tie-up with Biyani.
According to Biyani, the Future Group, especially its food division, is actively working with many small food entrepreneurs, giving them shelf space in its stores. With Amazon on board, this gets easier, as Amazon, already working with smaller stores, will make distribution easier.
“We have to learn from everybody,” Biyani said recently, referring to Amazon as his teacher.
“It is the most interest time in retailing where technology is converging into retail. The offline Indian retailers have lost the technology game although they had a 15-year headstart. So, foreign retailers who have the money will take bets on Indian retail businesses and the future is geared towards a data-led battle with the smartphone as the centre of the shopping world,” says Devangshu Dutta, CEO of Third Eyesight, a retail consulting firm.
Consulting firm Technopak pegs the size of the Indian retail market at $700 billion.
With the Bezos-Biyani tie-up, others will have to up their game, and India will see a new battle - Walmart versus Alibaba versus Amazon versus Reliance Retail.