How the e-commerce giant is trying to overcome stiff competition with new expansion strategies

Photos: Selvaprakash Lakshmanan

The e-commerce giant has seen steady growth since its entry into India in 2013, but the offline piece remains a challenge. After losing out on the Future retail acquisition, how does it plan to keep the growth engines revving?

In mid-November last year, Manish Tiwary, Amazon India’s Country Manager, made a presentation to the parent company’s external board at its Seattle headquarters. Tiwary spoke not just about the opportunities in India but also about innovations on the customer and seller fronts and the vast talent pool. The board, which includes eminent names such as India-born Indra Nooyi, a former Chair and CEO of PepsiCo, looked pleased.

“There was palpable excitement,” Tiwary tells BT at Amazon India’s headquarters in Bengaluru. Turned out in a pair of jeans topped with a collared T-shirt and a blazer, he recalls how the discussion veered around, among other things, the work on Generative AI taking place out of India. “After Seattle, the largest talent pool for Amazon is in India,” he says. 

Amazon has grown rapidly since launching its e-commerce business in India in 2013, although it was not the first player to enter the market. Six or seven players occupied the space, including Flipkart, its main rival today, which had a six-year head start.

MANISH TIWARY
Country Manager
Amazon India

From revenues of Rs 112 crore in FY13, Amazon closed FY23 with Rs 22,198 crore but with a loss of Rs 4,854 crore, which is not unusual given how it invests in its operations. A recent report by financial services and research firm JM Financial estimates Amazon India’s gross merchandise value (GMV)was around $18 billion in FY23, compared with Flipkart’s $20 billion (excluding Myntra, its fashion e-commerce business). Last June, Amazon committed to investing $15 billion in India over the next seven years, bringing its total investment across its businesses to $26 billion.

Tiwary is clear that the e-commerce tale in India is still being written, and companies like Amazon “have barely scratched the surface”. Penetration levels for e-commerce are at 1-2%, he reckons. ONDC or One Network for Digital Commerce, a not-for-profit company created by the government, pegs e-retail penetration to be only 4.3%, well below China’s 25% or the UK’s 23%.

“ Amazon had set processes and globalscale experience… It became easier for them to scale up quickly with the right local talent and a level of localisation ”

NEIL SHAH
Research Vice President and Partner
Counterpoint Research 

Competition does exist, most notably from Flipkart (launched in 2007 but acquired by Walmart in 2018) and others, including Reliance’s JioMart. But the headroom for growth is unlimited. Amazon would have been even more pleased had it bagged Kishore Biyani’s Future Retail, a big player in offline retail, but it was outsmarted by Reliance. Its acquisition has been locked in courtroom battles for years, and the prospects of a speedy resolution appear to be bleak (see box). 

Bespoke everything

Amazon attributes its growth here to its India-specific approach, among other things. Tiwary, who joined Amazon in mid-2016 after over two decades at Hindustan Unilever Ltd, points out that organised trade was small. “If you asked a seller for a catalogue, all you got was a stunned look!”

He keeps talking about the opportunities here and why Amazon is well-positioned for a specific reason. “Our DNA is around digital, and that applies to everything we do,” says Tiwari.

The Covid-19 pandemic fast-tracked digital adoption across businesses, and Amazon was no exception. A presence across categories helped as people turned to online purchases. Take the pharmacy business, where a brick-and-mortar store typically keeps 4,000-5,000 medicines. Around half of this relates to chronic ailments. “When we launched, we were clear about having 20,000 [kinds of] medicines,” he says. The focus was on the consumer, ease of availability, and the thrust on chronic diseases.

“Amazon India’s entire portfolio has 12-13 crore [120-130 million] products, which creates the stickiness,” Tiwary says. Amazon sells almost everything, from plumbing fittings to patent leather shoes, from books (Amazon Inc. began as an online retailer of books) to Bombay Duck (dried fish).

Tiwary, who heads the entity known as Amazon Seller Services Pvt. Ltd, says the small seller will be Amazon’s backbone even 50 years down the line. “Our approach has been to build infrastructure in advance,” he says. Last January, Amazon launched Amazon Air in India with two Boeing 737-800 aircraft operated by Quikjet Cargo Airlines, making it the first e-commerce company in India with an air cargo network. Other initiatives include cash on delivery and fine-tuning the Amazon app to make it lighter when India was still on 2G and 3G. The e-commerce giant’s other businesses in India are Amazon Internet, Amazon Wholesale, Amazon Data, Amazon Pay, and Amazon Retail.

“Innovation is a big part of our business. Offering our service in seven languages was an obvious thing to do to make the customer comfortable,” he explains. Two years ago, it bought GlowRoad, an Indian social commerce start-up, in an all-cash deal, as “we don’t have social commerce anywhere else, and it was done in line with the emerging trend”.

“ Amazon has taken a more long-term approach here (in India) with a lot of emphasis on localisation initiatives. They needed a large market like India since China was difficult for political and localisation reasons ”

Jaspreet Bindra
Founder
Tech Whisperer UK

Neil Shah, Research Vice President and Partner at Counterpoint Research, a global tech industry research firm, points out that Amazon came into India late but with a strong brand and reputation. “They also had set processes and global-scale experience running billions of dollars of e-commerce operations. It became easier for them to scale up quickly with the right local talent and a level of localisation that aligned well with the Indian consumers,” he says.

Jaspreet Bindra, Founder of consulting firm Tech Whisperer UK, says that Amazon did not treat the Indian business as an extension of the US. “Amazon has taken a more long-term approach here with a lot of emphasis on localisation initiatives. They needed a large market like India since China was difficult for political and localisation reasons,” he says.

MUKESH AMBANI
Chairman & Managing Director
Reliance Industries

He cites Amazon’s tech prowess, especially in machine learning and deep learning. “It put them ahead regarding PIN code optimisation, setting up logistics, routing algorithms, and selling fresh groceries,” Bindra says.   

Amazon has joined the quick commerce story through Amazon Fresh, using its tech and infrastructure to offer products at specified time slots. With Swiggy’s Instamart, Zomato’s Blinkit and Zepto in the market, it is becoming extremely competitive.

Technology the growth driver

Amazon and Flipkart dominate the e-commerce landscape. While Amazon’s growth has been organic, Flipkart has been much more aggressive. According to Shah, Flipkart has been a local success story that is more mainstream and localised. “It has made diverse bets and gone through some key changes since Amazon’s entry, helping it to keep ahead. Acquisitions such as eBay (its India operations), Myntra, Jabong, PhonePe, and Cleartrip, among others, have helped Flipkart get an edge in the fashion and payments space,” he says. Bindra points out that Flipkart was “massively funded” in its initial days and had a head start over Amazon India. “They built categories like mobiles, fashion and home appliances very well,” he says.

The firm used its tech prowess to customise its India business. Kishore Thota, Director (Shopping Experience), India & Emerging Markets, Amazon, who moved from Seattle in the initial phase, says India became the most visited Amazon location at one point.

Amazon first figured out the ecosystem, with over 25 languages and a heterogeneous customer base. “Everything was built specifically for India from the seller’s or the customer’s side. Some of those learnings are moving to other markets,” Thota says. Take the case of the emerging shopper who is new to e-commerce. “For that person, the trust factor is still being built, and the frequency of shopping is a little low,” Thota says. This emerging shopper can be found worldwide, and Amazon is taking its India lessons places.

For instance, there are customers in advanced markets, such as the US, who prefer paying in cash, and customers in Mexico and Brazil who opt for credit. “India then becomes a base market for the emerging shopper worldwide. The priority is to solve for India and eventually look for similar scenarios elsewhere,” Thota says.

KISHORE BIYANI
Founder & Group CEO
Future Group

From order to delivery

Amazon’s ‘fulfilment’ centres are the engines of its success. Taking us on a walk through BLR8, one such fulfilment centre, Abhinav Singh, VP (Operations), says that a product shows up on the website the moment it is stocked. Just BLR8 sprawls across 400,000 sq. ft and 2.3 million cubic ft. Why 400,000 sq. ft? “We hit upon this as the ideal number. Larger buildings could reduce supply chain costs, but you will also have a higher degree of automation,” he says. “The priority is to get it right on pricing, selection and convenience.”

Plus, there is a new way Indians are shopping: live commerce. India is witnessing more live commerce on video, where customers can come into contact with an influencer or use AI tools. A buyer can virtually place a television using augmented reality or AR to see what it might look like in a living room. Costs are saved here since a shopper typically orders three curtains, for instance, and then buys one after trying them out. “We are a native technology company, and the question we always ask ourselves relates to how we can automate something,” says Thota.

The Indian market means unpredictability and disruption. JioMart, with its deep pockets, can never be underestimated, and many other B2C businesses make for formidable competition.

Then, there is the not-so-small-matter of the ONDC, billed as the world’s first inclusive large-scale e-commerce system. Tiwary thinks it is still in the early days. “It is largely a hyperlocal model of grocery and food delivery. We are also working closely with them on transport and some technology.”

Shah believes that UPI will eventually have to embrace and integrate ONDC, driving the democratisation of e-commerce for vendors and consumers.

Going forward

While the marketplace is the biggest revenue generator (see graphic), an area like advertising can’t be ignored. Tiwary recalls how, a decade ago, launching a national brand was a very expensive affair. “Today, advertising on Amazon has become a very effective medium that helps our sellers establish their brands,” he says. The likes of Bathla Ladders started on Amazon, as did many start-ups. In 2017, he had a couple walking in to say they had an idea and needed help to push it. “That was Mamaearth,” Tiwary says. He cited boAt, which became the fastest-growing wearable electronics brand on the back of e-commerce.

ABHINAV SINGH
VP (Operations)
Amazon India

The seller base is varied and includes a 90-year-old lady in Chandigarh or just another aspiring unicorn taking its baby steps. “From where India’s per capita income is today placed ($2,400), it can take off [and] along with that, consumption as well. That is the magic about India,” Thota says.

Harish Iyer, EVP (Media & Investments) at Interactive Avenues, India’s largest digital agency, says that the trust that Amazon has built as a reliable e-commerce platform is a significant advantage for D2C brands. “Leveraging Amazon’s reputation plus its customer base and robust algorithms can catapult these brands to new heights of visibility and consumer trust. The ‘fulfilment’ backend helps simplify logistics for these brands, allowing them more time to enhance product quality and marketing strategies,” Iyer says.

MAHENDRA NERURKAR
VP (India & Emerging Markets Payments)
Amazon Pay

A key feature of Amazon’s strategy is its wide range: customers should be able to shop, make payments, buy flight tickets and gold—get pretty much everything.Then there is Amazon Pay, which Amazon India launched in February 2019 to capitalise on the market opportunity offered by UPI. Amazon Pay users do not have to enter their bank or debit card details. 

Mahendra Nerurkar, Vice President for India & Emerging Markets Payments at Amazon Pay, explains why being open to newer payment processing methods in a market like India is important. “Limited credit card penetration showed how large cash was, and with UPI, there is more engagement on Amazon today. It is a universal phenomenon in Singapore, Australia and Mexico and has greatly simplified user experience.”

KISHORE THOTA
Director (Shopping Experience)
India & Emerging Markets
Amazon

A big hitch in credit cards was the redemption of points. Amazon’s co-branded card with ICICI Bank addresses that and makes it easy for the customer.

A pertinent question is when will Amazon start to become profitable. Tiwary speaks of a clear road map. “We are a large company, and this is a commercial enterprise. We are very happy with the progress and the trajectory, with the primary objective continuing to be customer experience,” he explains. 

Amazon has been here for over a decade, and Indianisation is visible. With its tech expertise and scale, there is a good chance that growth will continue. But with Amazon losing the Future Retail piece, Tiwary will need all the other growth engines to fire. It helps that Amazon has a long-term approach and vision for India. That patience will make success possible in the vastly complicated Indian terrain. That is what Amazon is banking on.