Amazon India plans to launch grocery delivery before April, a move that may threaten the survival of so-called hyperlocal start-ups and provide a boost to its prospects in an intense market share battle with Flipkart and Snapdeal.
Amazon’s move comes at a time when grocery delivery start-ups Grofers and PepperTap are shutting operations in several cities or moderating expansion plans to reduce costs.
Amazon Seller Services Pvt. Ltd, the Indian unit of the world’s largest online retailer, plans to expand its Kirana Now initiative into a full-fledged business, three people familiar with the matter said. Amazon soft-launched Kirana Now, named after the Hindi word for grocery, last March in a few neighbourhoods in Bengaluru.
The company has hired hundreds of delivery men for the initiative and plans to expand to up to 10 cities in India this year, the people cited above said. A majority of the orders will be delivered by Amazon’s own logistics service in order to ensure consistency in delivery, they added. None of them wished to be identified.
Initially, Amazon will launch in Bengaluru and subsequently expand to other cities. Amazon has forged partnerships with modern retailers and kirana stores for the launch in Bengaluru, the people said. The company will aim to deliver orders within two hours of receiving them, they said.
A spokesperson for Amazon declined to comment. The Financial Express newspaper reported Amazon’s entry into grocery delivery on 7 January.
Amazon’s entry will put additional pressure on hyperlocal start-ups Grofers and PepperTap, which are striving to prove that their business models are sustainable.
Earlier this month, Grofers India Pvt. Ltd, which raised $120 million from Japan’s SoftBank Group and Tiger Global Management in November, shut operations in nine cities, citing poor demand. Rival PepperTap (Nuvo Logistics Pvt. Ltd) has frozen expansion plans.
Among consumer Internet businesses, grocery delivery is particularly difficult. Retailers operate on wafer-thin margins and pay out low commission rates of less than 10% on every order to Grofers and PepperTap. From that commission, the start-ups, which hire hundreds of people to pick up products from stores and then deliver them, need to pay for employee salaries, marketing spending and other costs. (Another start-up, Big Basket, operates on an inventory-based model where it delivers products from large warehouses directly to shoppers).
Even large e-commerce companies in India have struggled with grocery delivery.
In September, Flipkart Ltd started testing a separate ordering app called Nearby in Bengaluru to deliver groceries, electronics, clothes and other products. It has struggled to increase the number of orders from the app. Paytm, operated by One97 Communications Ltd, closed its grocery service in June, citing poor demand.
Amazon, which is involved in a market share battle with Flipkart and Snapdeal (run by Jasper Infotech Pvt. Ltd), has spent nearly a year learning the ropes of grocery delivery. Now, the company aims to expand fast, the three people cited above said.
“Amazon has taken some time to get this ready but once it gets into something, it will ramp up very, very fast. Groceries is a very challenging business so it’s taking additional time. But now, the processes are almost in place and there’s no shortage of money so it won’t be surprising if Amazon manages to do well,” one of the three people said.
The market is big and should support several firms, said Navneet Singh, co-founder of PepperTap. “Amazon has a very big battle to fight on the e-commerce side itself; it needs to be seen whether this is only a side project for it or a serious battle,” Singh added.
Amazon, with its logistics expertise and deep pockets, will be a formidable opponent for hyperlocal start-ups, said Harish H.V., partner at consultant Grant Thornton India.
“Groceries is a massive market but very difficult to crack as well. That’s why you’re seeing start-ups try various business models. I think there’s space for more than one firm in this and Amazon isn’t unbeatable. But their entry will shake things up and put pressure on start-ups to up their game,” he said.