Amazon is set to acquire a minority stake in Future RetailNSE 1.48 % next week, potentially giving the ecommerce platform access to nearly a third of the country’s organised food and grocery market through the Big Bazaar and Nilgiris supermarket chains and other outlets.
The deal by Amazon’s investment arm is pegged at about Rs 2,500 crore. Future Retail has more than 1,100 physical stores across India. “Amazon, through the foreign portfolio investor (FPI) route, will buy about 9.5% stake in Future Retail and has already signed a term sheet. The deal will be announced after board approval on November 14,” said one of two people aware of the matter.
Amazon and Future Retail, part of the Future Group, declined to comment. The companies started exploring an alliance in January this year when Future Group founder Kishore Biyani first met Amazon founder Jeff Bezos at his Seattle headquarters. That was followed by a series of meetings by executives of both companies in India and the US. ET was the first to report on a potential deal in February.
India allows 51% overseas investment in multibrand retail but Amazon is coming in through the arm that’s registered as an FPI, the route through which it picked up a 5% stake in Shoppers Stop last year. An FPI can acquire less than 10% in an Indian entity as a single firm while an Indian company can dilute up to 49% stake to multiple FPIs. About two months ago, Amazon acquired a stake in More supermarkets from Aditya Birla Retail through Witzig Advisory Services along with co-investor Samara Capital.
“It essentially means Amazon is taking a position in offline retail,” said Harminder Sahni, founder of retail consultancy firm Wazir Advisors. “But it can’t just be a financial investment and they will surely leverage Future Group’s network and backend facilities for supply chain and other operations.” Amazon has pledged to spend $5 billion in India and, having also received government approval for its proposed $500 million entry into the food sector, is ramping up its Amazon Pantry and Amazon Now initiatives.
Biyani’s Acquisition Spree
However, more than 95% of all retail sales in the country still take place at physical stores. Biyani has created an offline retail model that combines food and non-food profitably. Its strengths are apparel, general merchandise, luggage and footwear. In the past six years, Biyani has acquired more than seven supermarket store chains to put together a total retail space of 14.8 million sq ft with a presence in 340 cities, a national presence that can only be matched by Reliance Retail. In addition, the retailer also has data on 500 million consumers. Future also owns EasyDay stores.
Morgan Stanley expects the online food and grocery to become India’s fastest-growing retail segment, expanding at a compounded annual growth rate of 141% by 2020 and contributing $15 billion, or 12.5%, to overall online retail sales. Amazon’s aggression also represents its escalating battle with US rival Walmart, which bought a majority stake in rival online platform Flipkart for $16 billion in May. Globally, both companies have been dabbling in cross-channel acquisitions — Amazon acquired grocery chain Whole Foods for almost $14 billion and launched the checkout-free Amazon Go store in Seattle last year.
Walmart has been on a similar shopping spree — acquiring 100% of Chinese ecommerce business Yihaodian in 2015, having picked up a 51% stake in 2012. It acquired Jet.com in a $3.3-billion buyout, followed by a strategic alliance with JD.com in 2016. Last year, it added Moosejaw, ModCloth, Bonobos and Parcel to further consolidate its online-offline strategy.
Source: Economic Times