How Amazon And Alibaba Are Battling For The Indian Grocery Market

Amazon’s (NASDAQ:AMZN) recently closed acquisition of Whole Foods has signaled its intent to make a further push into the grocery segment going forward. The company was in recent talks with India’s most popular online grocery site, Big Basket, about a possible acquisition. However, a deal did not materialize, reportedly due to a disagreement regarding the valuation of Big Basket. Reports now suggest that Alibaba (NYSE:BABA) and Paytm Mall (in which Alibaba holds significant stake) are likely to invest around $200 million in Big Basket. If this investment goes through, Alibaba will have a significant stake in India’s leading online grocer, further strengthening its position in the country.

According to a report by global payments firm Worldpay, India is likely to become the second largest e-commerce market in the world, competing aggressively with China for the top position, in the next two decades. The study expects e-commerce volumes in India to grow at 28% each year between 2016 and 2020 and reach $63.7 billion by 2020. With both Amazon and Alibaba working aggressively to command a significant share in this high-growth market, grocery appears to be the next battlefront for these e-commerce giants. Amazon is not giving up on the grocery segment in India – while acquisition of Big Basket would have made it the strongest player in the market, reports suggest that the company is now looking to acquire a minority stake in Grofers, another online grocery site in India which is backed by Softbank.

According to consulting firm Technopak, only 5% of the total $400 billion Indian grocery and food market is made up of organized retailers. Online retailers contribute just $300 million to this market, indicating that there is strong growth potential in the future. With e-commerce still in a relatively early stage in the country, the online grocery segment is likely to grow tremendously in India over the long term. Both Amazon and Alibaba are looking to solidify their positions in this segment, as competition is likely to be intense.

We believe that as these two global players look to establish themselves in the region, the Indian e-commerce market may witness consolidation, with Amazon and Alibaba becoming the two main players. While Amazon currently appears to be ahead of Alibaba, the latter is catching up fast and could threaten Amazon in India in the long term.

View Interactive Institutional Research (Powered by Trefis):