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Entrepreneurship - Latest Developments November 9, 2017

What Amazon’s Entry in Food Retail Means for India

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Technology disruption is everywhere. From mobile wallets to online fashion and cab-hailing to booking hotels, the digital revolution has touched every domain. The penetration level could be measured by the fact that you can even open a savings bank account online; any physical visit to a bank branch is no longer a necessity. Food retail is another crucial sector witnessing new variations with every passing day. India-grown Flipkart’s key rival in the e-commerce scene, Amazon, is all set to foray big-time into online food retailing and this news is not of great interest for Flipkart alone but also for offline retailers like D-Mart and Future Group.

Also read: How can government help Indian startups compete with the foreign counterparts?

Future Group is an already well-knownbr and today, and D-Mart has gained immense clout lately by bringing the prices further down for customers. Will these entities feel the heat when Amazon takes up the task of delivering food products via an e-commerce platform, will this trigger a yet-another price war in the retail segment, and will this bloodbath generate more losses for the already ailing e-commerce players?

Let us first talk about who will gain in this entire shift. Consumers, indeed, stand to gain from the exacerbated price war and the fight to acquire more and more customers and increase GMV (Gross Merchandise Volume). Second in the list are small and medium producers of commodities since belligerent companies like Big Bazaar and Amazon would handhold them with better logistics and incentives so that the product reaches the shelves with minimum cost and trouble to the seller. Indeed, margins may eventually squeeze for producers, but sales volumes in the long-term will invite financial viability.

So, is it an all-around promising picture, or will it have some unwanted negative costs? India is a country where consumers’ buying habits and preferences are influenced by how much they can save over the maximum retail price quoted on the commodity. Future Group is mulling a loyalty-based business model where committed customers would get an additional discount over and above the one on offer to all if they opt for an annual membership that may come for some token purchase price. Undeniably, the market operates on prudent economics, and any discounts cannot breach limitations. Exaggerated MRPs and then a sham discount could be on offer at both online as well as offline outlets.

In the short-term, with a view to acquiring more market share, online and offline food retailers will allow genuine price cuts. Thiscan, however, lead to inflationary pressure as demand can see an upward trend on the back of these jaw-dropping discounts. This inflation in food products would disallow the central bank to cut policy rates; hence credit growth will be unlikely to pick up.

Future Group has unveiled its strategy of opening new retail outlets and conquering the retail food segment through astute price strategy. Amazon, which has given Flipkart a tough time, is contemplating online as well as offline retailing of food products and its deep pockets would allow great deals for customers to shift their loyalty from Big Bazaar and Easy Day to online grocery shop. Only time can tell who will emerge as the winner in this segment.

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3 responses to “What Amazon’s Entry in Food Retail Means for India”

  1. Amit Sharma says:

    Will people really buy grocery online is a big question!

  2. Chetan Raj says:

    I like how you have analysed the impact of an industry on macro topic like credit in economy

  3. Yogesh Kapoor says:

    Great read

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