Amazon is fumbling in India

About two years ago, a VC firm was evaluating an investment in a quick-commerce startup in India. The company’s instant delivery model was showing signs of success in the South Asian market, even as many startups in the space were struggling in developed markets.

But the firm was wary: Could Amazon swoop in and dominate this nascent sector with its heft, scale and resources? To make sure, a partner at the venture firm then reached out to some of his friends in Amazon’s leadership and walked away with the sense that the e-commerce giant wasn’t planning a quick-commerce offering in India.

That decision by Amazon is now looking like a significant misstep. Quick-commerce is increasingly making inroads in India, giving customers access to a range of categories from grocery to electronics that they can receive in minutes. The top three quick-commerce firms — Zomato’s BlinkIt, Zepto and Swiggy’s Instamart — are now on track to record annual sales of about $4.5 billion in total. That’s a fourth of Amazon India’s sales, which brokerage firm JM Financial pegs at $18 billion.

And Amazon seems to have ignored this burgeoning market altogether.

An opportunity overlooked

India, the world’s most populous nation, is a key overseas market for U.S. tech giants. But despite tens of billions of dollars in investments in the past 15 years or so, the country’s e-commerce market only grew 11% to 12% last year, according to industry estimates. The quick-commerce market, in contrast, is growing at more than 125% — a lot of that is of course due to that market’s small size, but the opportunity here is hard to overlook.

These firms are “clearly taking share” from larger e-commerce companies, said Rahul Malhotra, an e-commerce analyst at Bernstein, adding that it’s raising questions about how traditional e-commerce giants are going to react.

The categories these instant commerce firms operate in — groceries, household and kitchen equipment, electronics, and sometimes even smartphones — are often some of the biggest traffic and sales drivers for e-commerce businesses, which can then leverage that traffic to cross-sell and upsell other items to those customers, the founder of a leading e-commerce firm told TechCrunch.

And as quick-commerce companies see their sales and market share balloon, they can leverage their newfound heft to secure better deals with different brands. Quick-commerce firms are also changing buying behavior in the top 10 Indian cities, according to surveys by Bank of America and Bernstein.

Amazon has notably done little to address this opportunity. The company has not launched any quick-commerce offering; instead, it has mocked firms that deliver “quickly” in its advertisements. This stance is looking increasingly out of touch as the market evolves in developing countries like India. BlinkIt, which Zomato acquired for less than $600 million in 2022, is now worth more than $13 billion, according to Goldman Sachs. That’s more than half of Amazon India’s estimated worth.

Walmart-owned Flipkart, Amazon’s chief rival in India, has been quicker to respond, though some would argue it is still a tad late to the game. The company trails Amazon in urban Indian markets, but it this week launched its own quick-commerce offering, called Flipkart Minutes. The move is being seen as a strategic play to win over Amazon India’s urban customers.

Analysts feel Amazon’s decision to not innovate quickly in this sector is only one of a series of fumbles in India. The company has been losing market share in the country for more than three years — a trend that has come into sharp focus following the abrupt resignation of Amazon India’s head, Manish Tiwary earlier this week.

Amazon has not been able to capitalise on white spaces across quick commerce, tier 2 markets and categories like apparel, Malhotra told TechCrunch.

Meesho, a social commerce platform backed by SoftBank and Prosus, has made deep inroads in smaller Indian cities and towns over just a few years. The firm now commands greater market share in the mobile app space than Amazon does in India, Morgan Stanley analysts wrote in a note this week. Flipkart’s apps have more than 50 million daily active users in India, whereas Amazon has fewer than 40 million, according to Bank of America analysts.

E-commerce growth in India is increasingly driven by smaller cities, with 80% of Meesho’s customers coming from tier 2 and beyond, the startup said in a report Thursday. Tier 2+ cities outpaced larger urban centers in electronic accessory purchases for the firm, the report added.

A matter of priorities

Industry executives familiar with Amazon’s internal workings suggest that the e-commerce giant has changed its strategy in India. Under Andy Jassy’s leadership, the firm appears to be prioritizing its cloud business.

This shift was somewhat publicly justified when Jassy said last year that Amazon would invest $15 billion in the country by 2030 — of that sum, $12.7 billion is earmarked for AWS operations and expansions. In contrast, Walmart and Flipkart are pouring more than $1 billion into their e-commerce operations in India each year.

Amazon has also struggled with the slow pace of merchant adoption in the country, despite pouring hundreds of millions into that strategy, an analyst said. This limited pool of potential sellers restricts the growth and scalability of Amazon’s platform in a country with a large population and diverse consumer demands.

The last five years for the firm have been remarkably difficult for other reasons, too. The Indian government added stringent restrictions on how e-commerce firms operate in 2019, forcing Amazon to rework how it did business with sellers. Reuters reported in late 2022 that Amazon was giving preferential treatment to a small group of sellers in India, publicly misrepresenting its ties with those sellers and using them to circumvent foreign investment rules in the country. (Amazon said at the time that Reuters’ reporting appeared to have relied on unsubstantiated, incomplete, and/or factually incorrect information.) Then the firm lost a high-profile battle to acquire Future Group, which was India’s second-largest retail chain at the time, to Reliance.

That episode prompted Bernstein to say at the time that Amazon was facing an “unfavorable” regulatory environment in India.

But Malhotra, who authored that aforementioned report, now feels regulatory setbacks can’t be the only reason for Amazon’s struggles in the country. “They haven’t been strategic enough. And founders – whether it’s Deepinder (Zomato), Aadit (Zepto), or Vidit (Meesho) or the team at Flipkart – have out-executed the management team [of Amazon],” he added.

That’s not to say that Amazon hasn’t tried to scale and expand. The firm is still trying to make a dent in the mobile payments market in India with its Amazon Pay product, and it has also tried its hand at food delivery, but ended up shutting that venture down. The company also closed its wholesale distribution business as well as its foray into online education in the country.

Amazon is also increasingly trying to serve more Amazon Fresh customers in within two to three hours and continues to maintain a QVC-style shopping experience it launched on the app last year.

But an analyst, who didn’t wish to be quoted, said he was skeptical of Amazon’s ability to bounce back as the firm, which is still lossmaking in India, has already spent too much capital building a certain kind of supply-chain system that can’t be moulded overnight to meet the consumer’s changing shopping habits.

Asked to comment on its sales figure, an Amazon spokesperson instead claimed that the company’s data and external reports showed that Amazon.in is India’s “most trusted online shopping destination.” And that the information “shared by TechCrunch was factually incorrect and uncorroborated,” the spokesperson added.