Amazon sees a great opportunity in India, where the company already sells $ 8 billion worth of goods annually through its marketplace. Only Flipkart can boast of a greater online market share in the country. While Amazon has expressed interest in buying a stake in Flipkart, it seems very likely that Wal-Mart will take over a large part of the company in the near future.
A cash injection for his rival would certainly be a challenge for Amazon. But core North America and cloud computing continue to produce billions of free cash flow that Amazon could use to fund efforts in India and other emerging markets. India is particularly rewarding, with analysts predicting that online revenue will rise from $ 30 billion last year to $ 200 billion in a decade.
After this setback, Amazon plans to invest more in groceries, which is already the largest product category on Amazon, measured by the number of units sold in India. Amazon’s head in India, Amit Agarwal, expects to launch food delivery within two hours in the foreseeable future. Food could pave the way for broader e-commerce growth in the region.
Building on the tab
More than two years ago, Amazon started supplying food in the city of Bangalore, southern India, and since then, food sales in all regions have grown rapidly. Flipkart has failed to launch a food service since 2015 and launched a pilot program late last year. Meanwhile, Amazon has built a strong base of online shoppers.
The expansion of the food range and fast delivery to more customers will extend Amazon’s lead over Flipkart and strengthen the importance of online food sales. If Amazon establishes itself as the premier online food shopping destination, it can receive many follow-up orders and strengthen customer loyalty.
Amazon is currently gaining Indian buyers by offering Amazon Prime for just 999 rupees ($ 15) a year. The company could offer a similarly low-priced subscription for an unlimited supply of food within two hours. Amazon said that in India more people subscribed to Prime’s service within the first year than any other market in its history.
Build infrastructure and demand at the same time
Regular food delivery will support Amazon’s investment in supply infrastructure and logistics, which are still far behind developed markets. Of course, it’s a bit of a chicken-and-egg scenario because it’s hard for Amazon to build an infrastructure without having a secure demand. Therefore, the introduction of food delivery by geographic region in India can help make investment as efficient as possible.
That does not mean Amazon will not lose tons of money in India for years to come. Agarwal admits, however, that a return is still far away. Since Wal-Mart potentially pours billions into the cash registers of Flipkart, the intensity of competition will only increase in the next few years. Ultimately, however, this could lead to even faster growth in online sales in India, as the two companies offer consumer-friendly services and pricing, and help build the necessary infrastructure to make online commerce more accessible to people.
With the ability to capture much of the $ 170 billion in gross commodity over the next ten years, Amazon is wise to invest in its strengths. The company is already successful with food deliveries in India and a doubling could strengthen the online retailer’s leadership position in this category. However, Amazon will invest billions to enable fast deliveries and an excellent customer experience.
Is it just a question of whether Amazon investors really want to see profits?