Indian online grocery space headed for consolidation?

online-grocery Online grocery is a challenging space in India with limited presence and forms a small portion of the overall e-commerce segment | File

Amazon eyes possible investment in Grofers, while Alibaba is wooing BigBasket through Paytm Mall

Though there are only speculative media reports and no clear indications as to whether Amazon has invested in the online grocery firm Grofers, one thing is for sure—the online retailing giant is all set to expand its footprint in the online grocery space. Amazon also wants to counter Alibaba, which eyes a pie in Grofers' rival BigBasket through online marketplace Paytm Mall. 

Earlier, rumours were ripe that Amazon was in talks with BigBasket for an investment in the firm. But this fell through eventually. Online retailer and Amazon's Indian rival Flipkart have also eyed the space and is piloting the same in Bengaluru. 

That said, the reality is that online grocery is a challenging space in India with limited presence and forms a small portion of the overall e-commerce segment. The segment is not a fast-growing one, unlike the electronics and fashion segments. “Most of the Indian customers visit e-commerce sites due to the huge discounts they offer. Online grocery is a small and challenging segment as it is not possible to offer huge discounts at the level of electronics and fashion segments. Hence, this segment will not grow at the level of other e-commerce segments. I feel that Amazon wants to invest in Grofers to be in this space and to grow their business and have an edge over Flipkart as it does not have any presence in the online grocery segment,” said market analyst Alok Shende of Ascentius Consulting. 

However, the current trend points towards a possible consolidation in the online grocery segment in the country. Amazon had earlier launched Amazon Now with a two-hour delivery model and now wants to strengthen its foothold through Grofers. “This also indirectly means that consolidation will eventually happen in the Indian e-commerce segment wherein smaller niche players will be acquired by a handful of large players. As such, Grofers and BigBasket are small players and cannot aspire to grow at the level of Amazon or Flipkart on their own. I feel that Amazon may initially invest in Grofers but they may eventually acquire the firm completely as it makes more sense to have full control. The reason many of these investment and acquisition deals in the e-commerce space take more time is because barring Amazon, most of the other companies are controlled by investors and do not have a free hand in their decisions,” said Amit Chandra, IT analyst at Mumbai-based HDFC Securities. 

Interestingly,  Alibaba is fighting Amazon everywhere barring China. In India, it is finding its route through Paytm Mall. “Amazon's investment deal with BigBasket is not happening, but Amazon may eye an investment in Grofers in order to leverage their network of grocery chain business pan-India. Since Amazon has also ventured into the online grocery space, it wants to leverage the network and customers of online grocery firms such as Grofers in the country,” said Kris Lakshmikanth of Head Hunters India Limited. “There are only speculations regarding Paytm Mall's investment in BigBasket and nothing is certain as of now. Investments will happen eventually as Paytm Mall wants to expand in online grocery space and Amazon, too, wants a share of the pie in the space.”

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