NEW DELHI: Hot on the heels of its $13.7bn acquisition of US supermarket chain Whole Foods, e-commerce giant Amazon is planning a major expansion into India's grocery market, the world's third largest with $428bn of sales.
Amazon currently operates only as an intermediary in India, where it collects and distributes goods from more than 12m independent grocers, but the Indian government's decision last year to relax foreign investment rules has encouraged the company to expand its retail operations.
"We are extremely excited about the fact that the Indian government has looked at and opened up the opportunity of foreign direct investment in food," said Saurabh Srivastava, Director of FMCG, Consumables, at Amazon India.
Speaking to the Financial Times, he confirmed that the grocery market is "a very strategic business for Amazon globally" and that the new licensing regime will help Amazon to move beyond distribution.
"This [shift into grocery] was very clear to us even before we launched Amazon India in 2013," he said. "I moved to India from Seattle in 2012 and from the very beginning we have been planning to build this grocery business."
Just last week, it was reported that Amazon had invested a further Rs 1,680 crore in its Indian unit, taking its total capital investment to more than Rs 13,800 crore ($2.1bn). The fresh infusion is part of Amazon's overall plan to invest $5bn in its Indian operations.
However, the company's move into the Indian grocery market is not expected to be easy, especially as rival e-commerce players, such as India's Flipkart and Alibaba-backed Paytm, have tried and failed to make their grocery operations work.
Furthermore, India's online grocery market makes up less than 1% of total grocery sales, or about $150m, according to Technopak, one of India's leading consultancies.
And according to Satish Meena, a Delhi-based analyst with Forrester, Amazon should not underestimate the sheer logistical challenges to be faced when dealing with India's climate.
"The biggest challenge in India is the heat and we don't have a large number of refrigerated vans in the market," he said.
Data sourced from Financial Times, Economic Times; additional content by WARC staff