Amazon signs term sheet with Kishore Biyani-led Future Retail, to acquire 9.5% stake

Jeff Bezos-led Amazon has signed a term sheet with Kishore Biyani-led Future retail to buy out about 9.5 percent stake in the firm.

Amazon is set to make an investment, which is pegged at about Rs 2,500 crore, through foreign portfolio investor (FPI) route, said one of the sources close to the development to ET.

Though, the deal is yet to get approval from its board. The board will discuss and give the final nod to the investment next week.

The reports of potential investment were doing rounds from January when Kishore Biyani went the US to meet Jeff Bezos. This followed by series of meeting between both firms. However, both the firms did never officially come open in public about the deal.

This investment will give Seattle-headquartered firm access to about third of India's organised food and grocery market through the Big Bazaar and Nilgiris supermarket chains and other outlets.

The fresh investment in Future Group would give strong hold to Amazon in omnichannel retailing. Besides, Biyani offline retail model combines food and non-food profitably, which would help Amazon.

In last few years, Future Group has extended its network and made around seven acquisitions to put together a total retail space of 14.8 million sq ft with a presence in 340 cities. Very few players can match this. The retailer also has data on 500 million consumers.

This is third offline retail investment by Amazon in India firms. In last year October, Jeff Bezos-led firm had bought 5 per cent stake in Shoppers Stop for $26.35 million. In September this year, Amazon along with PE firm Samara Capital signed a deal to acquire food and grocery retail chain More. 

In Future Group, Premji led Birla Group had picked 6 percent in June this year. It currently holds 10 percent stake in the Biyani-led firm.

The development is significant as all the existing players including giant ones are building a food and grocery business in the country. Flipkart and Amazon see a huge opportunity in grocery space.

The online grocery will be the fastest-growing segment (around 65-70 per cent CAGR between fiscals 2017 and 2020) in e-retail and almost quadruple over the next 3 years to Rs 100 billion in terms of revenues, according to Crisil report.

The deal also represents Amazon’s stand to take on US rival Walmart, which bought a majority stake in rival online platform Flipkart for $16 billion in May. It will also be competing with players such as Grofers and BigBasket.

Earlier, Amazon India head Amit Agarwal said groceries and households products will account for half of the business for the firm in coming years. Currently, it offers food products through Amazon Pantry and standalone app Amazon Now. Both platforms procure from third-party sellers.