Amazon takes cue from Alibaba's India playbook to beat Reliance, Flipkart

Besides holding closed-door meetings with top industry leaders, hobnobbing with Bollywood stars and visiting the iconic Taj Mahal, Amazon founder and Chief Executive Jeff Bezos did something unusual during his India trip this month. He delivered a package to a customer from a kirana store in Mumbai and shared the picture on his Instagram account.

Later, during a fireside chat with Bollywood star Shah Rukh Khan, Bezos described going to a kirana store as an “incredible experience.” “It is this tiny little store. We have thousands of these points of presence now, where they do their regular business, but then they also provide a place for people to pick up their packages,” Bezos told Khan. “I talked to this young man (at the kirana) who helps his parents to run the store, about how it has really improved their lives, to have that extra source of income. It was a moving experience.”

Delivering the package was not a random act by Bezos. It gives a sneak peek into the business strategy that Amazon is betting on to take on rivals such as Walmart-owned Flipkart and Reliance’s e-commerce venture JioMart by merging online and offline retail. Only 7 per cent of the $1.2 trillion retail market is online and Amazon is eyeing the remaining 93 per cent of the industry, according to sources. 

This month, Bezos announced that the company planned to invest $1 billion to help bring 10 million traders and micro, small, and medium enterprises (MSMEs) across India online, enabling $10 billion in cumulative exports by 2025. The firm also said it planned to create 1 million jobs in India by 2025 through continued investments in technology, infrastructure, and its logistics network. Amazon has so far committed $6.5 billion to the India market, including $1 billion announced this month. It is making these investments not only to tap the e-commerce market in the country, which is expected to touch $200 billion by 2028, but also digitalisation of small businesses including kiranas and in building its grocery and financial services business.

People familiar with Amazon’s business strategy in India said that the company is looking at replicating the model of e-commerce giant Alibaba which has Hema stores and business-to-business retail platform Ling Shou Tong (LST) in China, to empower small enterprises in the country. The Seattle-headquartered firm is also looking at adopting the model of Canada-based Shopify, which sets up e-commerce websites for small businesses, and partners with others to handle digital payments and shipping.

“Globally, it is a strategic thing that they are doing from the last one year. It is about giving technology to small businesses to run the business, digitise them and create catalogues,” said a person familiar with Amazon’s business strategy in India. “It is like what Alibaba is doing in China with their LST platform and Hema stores.”

In China, Alibaba is using LST, a retail-management platform to help mom-and-pop store owners optimise product procurement and boost sales.  Jack Ma-led Alibaba is also quickly expanding its offline retail store Hema, which has gained popularity in China for its mobile-first approach to grocery shopping. Shoppers use Hema’s mobile app to scan barcodes across the store to get information about the products and recipe ideas. Utilising neighbourhood stores as warehouses, Hema enables 30-minute delivery within a three-km radius. 

 “Mom-and-pop stores are really the future in India. When all the tier 1 and tier 2 cities are digitised, what remains are the tier 3, tier 4 and tier 5 cities and that is where all the action is going to happen. This also includes bringing large vendors who are not on their platform from these locations.”

Last year, Amazon said it was on track to invest over $15 billion in 2019 in infrastructure, tools, services, people, and programmes to help third-party sellers succeed. This means Amazon profits when third-party sellers succeed. 

One of the biggest challenges, though, that Amazon is aiming to solve to tap tier-3 and tier-4 cities and towns is last-mile delivery. In areas where the order volume is not high, it is not viable for firms such as Amazon or Flipkart to maintain warehouses.

“So, they are going to work with these kirana stores and use them as delivery and pickup points and also use some space as a warehouse,” said Satish Meena, a senior forecast analyst at Forrester Research. “They don’t want to lose out to Reliance, because Reliance is also trying to attempt the same thing. Amazon will certainly do something similar to Alibaba (in future). At this moment, they are taking the first steps to digitise the stores,” said Meena.

Amazon is also going to invest a large chunk of the capital to build the supply chain for its grocery and food category. “That is where you are seeing the competition coming up from Reliance, Walmart, Bigbasket and Grofers,” added Meena. 

A big part of its strategy is its financial technology platform to rapidly enable transactions online for small businesses and even provide them access to capital. “In the last 24 months, Amazon has poured in more than half a billion dollars into its Indian payment business. That’s an indication of how competitive, the payment space has become in India,” said Vivek Durai, founder of business signals platform Paper.vc.

Amazon and Alibaba have generally avoided direct competition by dominating different parts of the world. Salman Waris, managing partner at New Delhi-based specialist technology law firm TechLegis Advocates & Solicitors, said this could change as the two giants expand their footprint in India.

The two have taken different approaches to invest in India’s growing economy. Waris said while Amazon is pouring billions into its branded marketplace, Alibaba has made heavy strategic investments in payment solutions and existing e-commerce businesses as it pursues a “super app” strategy in India.

Regardless, capturing market share and becoming profitable will require scale of business and vast amounts of capital, said Waris. “Amazon’s present investment initiative is aimed exactly at this ‘scaling up’ and it has realigned its strategy by trying to help India’s SMEs or kirana stores,” said Waris.