India's online grocery market has enormous potential, and Amazon (AMZN -1.61%) has taken notice. The e-commerce giant earlier this year acquired a 49% stake in Future Coupons, gaining a foothold in a fast-growing niche in that nation's retail sector that could generate billions of dollars in revenue in the long run.
Management consulting start-up RedSeer predicts that India's online grocery spending will rise from just $1.2 billion last year to $8.7 billion in 2022, clocking a compound annual growth rate of 60%. Amazon is now positioned to take advantage of this opportunity, and it has started putting its stake in Future Coupons to good use.
Baby steps into India's online grocery market
According to an article in the Indian daily newspaper Business Standard, Amazon is tapping the resources of India-based retailer Big Bazaar to quickly deliver fresh produce to consumers in select markets. Big Bazaar is a hypermarket chain operated by the privately held conglomerate Future Group, in which Amazon has a 3.58% interest thanks to its ownership stake in Future Coupons.
Future Retail operates several chains in India, with more than 1,500 stores in total, 239 of which are Big Bazaars spread all across the country.
Amazon is currently using 18 Big Bazaar locations to fulfill between 300 and 1,000 grocery orders a day in major metropolises such as New Delhi, Bengaluru, and Mumbai. Within two hours of customers placing their orders via Amazon's website or its mobile app, staff in these stores select, package, and dispatch their purchases to them. The Business Standard article noted that Amazon plans to use Big Bazaar's infrastructure to deliver fresh groceries to customers in 12 cities during the next phase of the project, with the goal of eventually scaling up to 130 cities.
Amazon plans to offer the full range of products available at Big Bazaar on its app starting in early 2020, which suggests the e-commerce giant could scale up its grocery operation in India really fast next year.
However, this isn't Amazon's only play in India's online grocery space.
Things could escalate quickly
In September, Amazon picked up a 49% stake in India's fourth-largest supermarket chain -- More -- while local private equity firm Samara Capital acquired the other 51% in a deal worth $600 million. Amazon let Samara be the majority shareholder to bypass India's restrictive foreign-direct investment regulations.
This acquisition has given Amazon access to more than 540 stores across the country, including both supermarkets and hypermarkets. These stores offer fresh fruits, vegetables, and groceries, among other product categories, so it won't be surprising to see Amazon use them as launching pads for its move into the online grocery space in more markets across India, where it will go head-to-head with a set of rivals that mostly consists of start-ups such as Big Basket and Grofers.
Big Basket, for instance, currently delivers in only 26 Indian cities. Grofers is a niche player that operates in the top 10 Indian cities. Amazon's biggest challenger, Walmart-owned Flipkart, currently covers only five cities through Flipkart Supermart, the company's online grocery store.
It's clear that Amazon has an advantage over all of its rivals in the burgeoning online grocery market in India thanks to the speed with which it is capable of moving. More importantly, Amazon's addressable opportunity could improve significantly in the long term, as just 0.15% of Indians currently purchase groceries through online channels.
As more Indians go online and start buying groceries via digital channels, Amazon's business there will get a nice shot in the arm. This could help boost it into a top consumer discretionary player in India.