Amazon was looking to purchase a 10 percent stake in Kishore Biyani’s Future Retail. However, earlier buzz around the deal began again after the Press Trust of India reported that Jeff Bezos, the founder-CEO of Amazon, was in talks for an investment of over USD 20 billion in the Indian brick and mortar retailer.
As things currently stand, Amazon is reportedly set to take a 9.5 percent stake in Future Retail in a USD 25 billion deal that includes the option for the complete buyout of Biyani’s 46.5 percent stake in the company in the long-term.
The agreement, which will see Amazon acquire the minority stake through the foreign portfolio investor (FPI) route, is expected to close. The FPI route will limit Amazon’s investment to a 10 percent holding. However, Indian laws currently allow for up to 51 percent holding by a foreign entity in the multi brand retail space.
The move signals Amazon’s larger plans for India’s offline retail market. Future Retail, which notched up sales of USD 184.8 billion in the previous financial year, manages about 80 consumer brands, including Big Bazaar, Easyday and Foodhall brand of supermarkets, and has more than 1100 physical outlets across the nation.
Earlier this year, Amazon took a position in Witzig Advisory Services, which is acquiring the Aditya Birla Retail’s more supermarket franchise in India. In November 2017, it also bought a 5 percent stake in Shoppers Stop, also through the FPI route.
More importantly, the Future Retail deal will give the American online retail giant a pan-India presence. That will be a significant leg up when it comes to directly competing in India with Walmart, which sealed the acquisition of a 77 percent stake in Indian e-commerce major Flipkart earlier this year. Walmart also has presence in India’s offline retail space through its wholesale cash-and-carry stores, the number of which it plans to triple by 2022.
Amazon’s plans indicate its awareness of the ground realities in India. While online retail receives all the hype as one of India’s fastest growing industries, the importance of physical retail cannot be discounted.
A large majority of the Indian populace still buys their goods at physical outlets, and that does not look to change anytime soon. Amazon can leverage Future Retail’s supply chain and warehousing network to distribute goods in smaller cities and hold inventory for its e-commerce operations, all of which will justify its decision to increase its stake in the company in the future. ―Business Insider