Ecommerce giant Amazon delays launch of food retail business

Amazon is reportedly looking to delay the launch of its food retail venture as it tries to segregate food retail business from its marketplace, according to an ET report.

The Seattle-based ecommerce giant had earlier this year received the approval from Department of Industrial Policy and Promotion (DIPP) for $500 million investment in online-retailing of food products and was looking to launch the venture by Diwali.

Last year, the Indian government allowed 100% foreign ownership in the food retail business. The proposed $500 million investment will be utilised by Amazon to establish the food retail business entity, separated from its ecommerce marketplace, and to sell directly to consumers.

This is because the new policy prohibits foreign retailers to sell any nonfood items directly to consumers. It only allows a foreign company to open a wholly-owned subsidiary in India to retail food products produced and or manufactured in the country by way of opening stores or online. The ecommerce firm will enter the food retail market through its subsidiary Amazon Retail India and will subsequently start a private grocery label in India.

Talking about the delay, an Amazon India spokesperson said, “We have not announced any dates or details about our approval for food retail license and we cannot comment on future plans."

The delay is likely due to the segregation of the marketplace and the food retail business. A source privy to the matter told ET that the warehouses are leased to Amazon Seller Services (marketplace), and to comply with the FDI policy, these warehouses need to be moved to Amazon Retail India.  

The ecommerce giant currently offers food products through Amazon Pantry. However, it is currently procured from third-party sellers. Apart from this, grocery delivery through Amazon Now app is also done via a tie-up with retailers such as Big Bazaar and Hypercity.

Apart from Amazon, online grocers – Bigbasket and Grofers have also received approval for their proposals of investment for food retail. While Bigbasket has proposed an investment of Rs 100 crore, Grofers was looking to invest about $40 million in its food retail unit. The presence of organised retail in the food sector will help these businesses source goods directly from farmers and reduce the role of middlemen, and hence lead to a reduction in market prices.