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Amazon-Future deal signals a triangular retail battle

So, what does Amazon's 49 per cent stake in Future Coupons mean? Future Coupons is a promoter entity of the Kishore Biyani-owned Future Group to whom warrants were issued earlier

twitter-logoAjita Shashidhar | August 23, 2019 | Updated 21:53 IST
Amazon-Future deal signals a triangular retail battle

The much-awaited Amazon-Future deal could well be an indicator of consolidation of the organised retail market in India. Though an indirect investment, the deal gives Amazon access to the country's second largest physical retail chain, which has a network of 1600 stores. This makes Amazon-Future a formidable competitor to India's largest retail chain, Reliance Retail. On the other hand, there is Walmart-Flipkart, which is also supposed to be scouting for physical retailer companies to invest in. "This will lead to a monopoly of three-four players, and there will be a clear move towards platform play," points out Govind Shrikhande, Former MD, Shoppers Stop.

"The Amazon-Future deal will see more of multi-channel retail in India," agrees Arvind Singhal, Chairman, Technopak Advisors. He says that Future Retail's multiple channels such as food and grocery and hypermarkets make it an attractive buy for Amazon. Similarly, Reliance Retail is also working towards offering seamless online and physical services, which would enable a consumer to shop both online as well as in its retail stores.        

The retail battle will now be a triangular battle between Walmart-Flipkart , Amazon-Future and Reliance Industries. "It will be interesting to see how the other large grocery retailers such as Tata Group (via Trent) and Avenue Supermarket align themselves," says Abneesh Roy, Research Analyst and Executive Vice-President, Edelweiss Securities.

So, what does Amazon's 49 per cent stake in Future Coupons mean? Future Coupons is a promoter entity of the Kishore Biyani-owned Future Group to whom warrants were issued earlier. Post the conversion of warrants, Future Coupons will hold a 7.3 per cent stake in Future Retail and Amazon by virtue of being a stakeholder of 49 per cent, would be entitled to a 3.5 per cent stake in Future Retail. However, Amazon has been given a call option to acquire all or part of the promoters shareholding exercisable between the third and tenth year. Amazon will be able to acquire complete control provided there is a change in the FDI retail rules, which currently doesn't allow FDI in multibrand retail.  

Though Amazon's investment in Future Retail is indirect and still a while away, analysts say that it will not prevent the two stakeholders from leveraging each other's strength. While Amazon will now have a physical presence through Future Retail's network of 1,600 Big Bazaar, Easy Day and Nilgiris stores, Future Retail will not just have the world's biggest ecommerce company as its partner, it will also get access to Amazon's robust digital platform and technology. Future Group for the longest time has been experimenting with digital, in a bid to put in place the perfect model.

Amazon doesn't have a front end in India and this deal will immediately enable it to use Future Retail's network of stores as a point of distribution. "Online is a burn model in India. One of the major costs for most companies is cost of delivery and return. If Amazon is able to deliver its products (especially pantry products) from one of the Big Bazaar or Easy Day stores instead of stocking it in a centralised distribution centre and then despatching, the cost of delivery and return will significantly drop," explains former Shoppers Stop MD, Govind Shrikhande. This deal comes at a time when Amazon is looking to scale up its food and grocery business in India.

Shrikhande even expects the upcoming triangular retail battle to put an end to deep discounts. "The ecommerce retailers have been deep-discounting to acquire customers and acquisition of physical retail chains gives them access to an assured customer-base. This in return will lead to less discounting."  

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