Amazon Set to Grab ‘More’ Of India’s Offline Retail Space
Domestic Traders To Oppose, Plan To Move Competition Commission
(NewsClick.In) New Delhi: In bad news for domestic retail trade, the world’s largest online retailer Amazon has partnered with Indian private equity firm Samara Capital — and bought India’s fourth-largest supermarket chain, the Aditya Birla Group-owned More. And Indian traders are set to protest.
The deal is reportedly worth Rs 42 billion (or Rs 4,200 crore), although details are not yet known publicly.
Amazon had to partner with Samara Capital in order to avoid running afoul of the foreign direct investment (FDI) rules, which cap foreign investment in multi-brand retail at 51%.
According to reports, Amazon will hold 49% stake in Aditya Birla Retail Limited (ABRL) — which was set up in 2007 to run the food and grocery chain, More. Samara will hold 51%. The agreement was reportedly finalized on 19 September.
Talks regarding the deal were reportedly going on for months, and Amazon and Samara have formed Witzig Advisory Services Private Limited, in which Amazon is a minority shareholder, to make the acquisition.
The American e-commerce behemoth has kept its stake a little lower than the FDI threshold, reportedly to avoid any potential complications.
More runs 523 supermarkets and 20 hypermarkets across the country.
As Amazon looks to build its presence in India’s brick-and-mortar (offline) retail space, this is Amazon’s second such investment, albeit a much larger one.
Last September, e-commerce firm’s investment arm Amazon.com NV Investment Holdings acquired a 5% stake in Shoppers Stop, a department store chain, for about Rs 1.80 billion.
Amazon has reportedly set aside at least $500 million to invest in its food and groceries retail business in India — as e-commerce companies battle to capture the groceries market.
Several media reports in the past six months have also indicated that Amazon has held talks to buy a stake in Kishore Biyani’s Future Group, although the status of the talks is unclear.
Amazon has also been in talks with Kishore Biyani-led Future group, another retail giant in the country, to buy a stake of 12 to 15 per cent for around $700 million.
It was also reported that Amazon held talks with Spencer’s Retail Ltd, a supermarket chain owned by the RP-Sanjiv Goenka Group, but later reports say it did not work.
Amazon is serious about entering the offline retail space through food and grocery not just in India, but across the world. Last year, Amazon had bought American supermarket chain Whole Foods for around $13 billion.
The trading community has been consistently opposed to foreign investment in retail on the very valid grounds that foreign capital would destroy India’s domestic retail trade, especially wipe out the small and medium retailers.
To begin with, the Confederation of All India Traders (CAIT) plans to file a complaint, as first reported by Economic Times, with the Competition Commission of India (CCI) regarding this deal.
However, CAIT is waiting for the details of the Amazon-Samara-More deal to emerge.
Speaking to Newsclick, CAIT secretary general Praveen Khandelwal said, “So far, the details have not been made public. We are waiting for the details, on the basis of which we shall approach the CCI. After Walmart-Flipkart, it is Amazon and Samara, tomorrow it will be Alibaba and other global giants wanting to clamp down on Indian retail.”
In fact, Chinese e-commerce giant Alibaba has been in talks with Mukesh Ambani’s Reliance Retail Limited to form “a mega Indian retail joint venture” — a situation that could lead to a retail oligopoly, as Newsclick has said before.
Khandelwal said, “This is a strategy to dominate and control the retail trade in the country in a systematic manner. If this trend continues, then the entire retail trade business of Rs 42 lakh crore annually will soon be squeezed into a few hands, which will convert it into a monopoly and crony capitalism will reign.”
He said it’s not just the retailers who would be destroyed, but the consumers would be affected too. “Eventually, the consumers will also be directly hit, because after wiping out the competition, these companies will raise the prices, and consumers will have no choice.”
The transaction is yet to be notified to the CCI, as per reports. Once it is notified, the fair trade regulator would be required to give a prima facie view on the deal within 30 days and a final approval within 180 days.
A CCI official was quoted by ET as saying, “This is a reportable transaction as it crosses the Rs 350 crore assets and Rs 1,000 crore annual turnover benchmark. Once the filing is made, the summary of the deal will be made available online.”
However, it remains to be seen how helpful complaining to the CCI would be for the Indian retailers. After all, the CCI gave its approval to the Walmart-Flipkart deal — despite a slew of complaints, as it clearly washed its hands off the competition-distorting practices and FDI violations that the complaints had highlighted.
On May 9, US-based multinational corporation Walmart — the world’s biggest brick-and-mortar (offline) retailer — had announced its acquisition of 77 percent stake in Flipkart, India’s largest e-commerce company.
The CAIT has already launched a 90-day nationwide agitation programme, which began on September 15, against the Walmart-Flipkart deal — and it has called for a called for a ‘Bharat Trade Bandh’ on 28 September, demanding that the Modi government scrap the deal.