A stringent policy climate and challenges on the business front have been weighing on Amazon’ growth in the country. Under the company’s new strategy, categories and projects are being reprioritised internally depending on the focus assigned to each even as Amazon looks to fight off intensifying competition.
In December 2023, Amazon India’s top brass had a key meeting in Bengaluru to come up with a three-year strategy as the global e-commerce giant had hit a rough patch in the country over recent years.
Amazon certainly required a new plan. It was not just the stringent policy climate or the eyeball-to-eyeball encounter with the country’s most powerful corporate group, but challenges on the business front, too, have been weighing on the company’s India growth. Just a little over a year ago, Amazon had retreated from some of its futuristic projects and laid off employees. After having flirted with new lines of business such as food delivery and ed-tech for a few years, Amazon shut them down in late 2022 and initiated a company-wide downsizing drive.
Moreover, the growth of Amazon’s marketplace business has been sluggish at best. Its FY23 revenue growth was flat at 3% on a year-on-year basis, a far cry from Flipkart’s 42% and Meesho’s eye-popping 77% (albeit on a much smaller base).
To be sure, Amazon’s marketplace entity’s revenues are higher than that of Flipkart’s. But it may not be a like-to-like comparison since Amazon’s revenues also include its Prime subscriptions while Flipkart’s figures do not factor in sales (of around INR4,300 crore in FY23) from the group’s fashion platform Myntra.
FY24 has also not been looking good so far for the American e-commerce giant. According to a recent report by analyst firm Bernstein Research, while Flipkart’s user base recorded a year-on-year growth of 21% in December 2023, Meesho saw a 32% jump in sign-ups. In comparison, Amazon’s user base saw a muted 13% growth.
This was “primarily due to relative premium offerings as compared to peers,” Bernstein said in its report, adding that Meesho has been gaining share primarily through its strategic focus tier II+ cities due to its mass positioning, operating through a zero-commission model”.
All this meant that Amazon had to act fast.
A new strategy
In the December meeting of the company’s senior-most leaders, Amazon India drew up a brand new, three-year plan, effective 2024. According to sources in the know, the strategy is acronymed ‘BARE’.
Here’s what it stands for:
B - Build
A - Accelerate
R - Reimagine
E - EfficiencyU
Under BARE, categories and projects are being re-prioritised internally, depending on the focus that the company wants to assign to each. For example, groceries have been put under the ‘reimagine’ category, especially as the company is looking to fight the onslaught from quick-commerce firms. Some categories such as furniture and home and kitchen, meanwhile, have been included under the ‘Build’ vertical. Investments in new verticals such as Amazon Bazaar, which the company launched last month to take on Meesho in the low-value, unbranded products category, also fall under ‘Build’.“
This is a part of Amazon’s long-term growth plan, among the first for India under CEO Andy Jassy,” says one of the sources. Jassy took over the top job from Amazon founder Jeff Bezos in mid-2021.
Several members of Amazon India’s senior leadership team, including chief financial officer Raghava Rao, had visited Jassy in Seattle a few weeks ago, another source reveals.
According to a third person close to the company, “Raghava [Rao] and several other leaders now head not just India but the emerging markets for Amazon in their respective functions. So, they occasionally meet the leadership in Seattle. India is seen as an experimentation ground for all emerging markets”. This person further points out that Amazon globally has a culture of planning for at least three years ahead. “Most teams prepare such three-year plans, and sometimes even five-year plans.”
Amazon did not respond to ET Prime’s queries.
Reimagining grocery
One vertical that Amazon is sharpening its focus on is the grocery segment. The blitzkrieg by younger quick-commerce players in the past two years has hurt Amazon’s grocery ambitions despite being among a handful of e-commerce companies which received a food retail licence from the government.
ET Prime had reported last year that the company was also looking to move beyond its reliance on More Retail stores to fulfill the orders for Amazon Fresh.
To counter the aggression of quick-commerce players, Amazon India is preparing a document, internally referred to as the ‘PR (press release)/FAQ (frequently asked questions) document on quick commerce’. It is a common template followed by various teams within the company while pitching a new product idea or a new approach to the top leadership.
“A PR/FAQ document is being prepared on quick commerce to share with top leadership on how to re-strategise Amazon Fresh,” a person aware of the details tells ET Prime, adding, “This shows Amazon is taking the threat from Blinkit and Zepto very seriously”.
Meanwhile, rival Flipkart is already looking to launch quick-commerce deliveries in several cities, just over a year after abandoning its previous fast delivery initiative, Flipkart Quick.
Elusive profits
More than a decade since it started operations in India, Amazon is facing increasing competition from multiple quarters even as its hunt for profitability in the country continues.
The story isn’t any different for its rivals. Walmart-owned Flipkart, too, is yet to turn in a profit in India despite sweating it out in the country for as long as Amazon. Both entities have relied on continuous fund infusions from their parents to grow market share and build a base of over 200 million online shoppers in the country. Amazon’s marketplace entity recently received another infusion of INR830 crore from its parent company. As of last year, Amazon had pumped USD6.5 billion into its India business, Bernstein had reported.
According to another source close to the company, “Amazon is contemplating if its India business will ever be profitable. Perhaps, this could be the company’s last-ditch attempt to see if its India weightage should go down in the overall scheme of things”.
Moreover, even as Amazon has been struggling to compete with Flipkart in terms of gross merchandise value (GMV) and volumes, younger rival Meesho is giving the global e-commerce behemoth a run for its money.
Last June, when CEO Jassy met Prime Minister Narendra Modi in the US, he had committed an additional investment of USD15 billion by 2030. This would take the company’s total investments in the country to USD26 billion. However, about USD13 billion of this new investment has been earmarked for building out the cloud-computing business, Amazon Web Services, in India.
For the e-commerce business, the focus now is on reining in burn.“
The aim isn’t to target aggressive growth but just to improve the financial metrics for now. The market is not growing so fast, and so, they are looking at recalibrating the cost of business,” says another source in the know.
The final cut
Overall, the e-commerce market has witnessed one of its slowest phases ever with the industry growing only at around 15% year-on-year in 2023, as per analysts, as against the 25%-30% growth the sector saw between 2019 and 2022. The overall online retail market size stood at around USD60 billion in GMV in 2023, as per Datum Intelligence.
Amazon has been steadily losing market share, and that is evidently putting pressure on its India leadership. It’s betting on ‘BARE’ as a key medium-term strategy to redraw the highly competitive e-commerce landscape.
Amit Agarwal, SVP, emerging markets, Amazon; Andy Jassy, CEO, Amazon; and Manish Tiwary, VP and country manager, Amazon India; illustration by Manali Ghosh
Comments