Amazon in talks to buy Future Retail stake

Sunny Sen May 22, 2018 5 min

American e-commerce giant Amazon is in talks to acquire a 10% stake in Future Retail Limited, the company which owns brick and mortar retail shops like Big Bazaar and Easy Day in a bid to expand its offline presence.

Three sources confirmed that the two retail giants are in conversation. “Talks are in advanced stages, and might materialise in the next couple of weeks… there are other parties who have had discussions with Future (Retail), too, but Amazon has the best chance,” said a source with knowledge of the deal.

The deal, according to a second source, values Kishore Biyani owned Future Retail at about $6 billion (Rs. 40,872 crore). Amazon might end up spending about $500-600 million to acquire the stake in Future Retail — which has a market cap of $4 billion and is listed on the bourses.

Amazon already sells a large number of phones, books, clothes and electronics in India, but that’s not enough. It wants to sell fresh produce and grocery to a large number of online buyers. It also wants to be present on shelves in brick-and-mortar stores. And it wants access to a large cache of customer data that Future Group has built over years, to glean insights about the Indian buyer.

India’s online retail market is set to be close to $202 billion in 10 years.

“Everyone wants to dominate India’s retail market… Future has valuable insights on consumer behaviour through its brick-and-mortar presence,” said Raghu Viswanath, managing director of management consultancy firm Vertebrand. “In India the future is omnichannel — its neither only online or only offline.”

The move comes close at the heels of Walmart’s $16 billion payout to acquire 77% of Flipkart — India’s largest e-commerce firm. Walmart is Amazon’s biggest rival in the US and has now become one in India, too.

Also see: All you need to know about Flipkart after Walmart acquisition

The stakes are high: Indian e-commerce market will be worth $202 billion in 10 years, and Amazon will have 35% of the market, Citi Research in its latest note on Amazon said. The bank also valued Amazon’s domestic operation at $16 billion, second to only Flipkart which is valued at $22 billion.

There’s a rider to the Amazon Future Group deal, said the third source. It doesn’t want Future Retail to continue with its e-commerce expansion. “Amazon is looking at an exclusive tie-up with Future Retail… that is holding back the deal,” the person said.

This is not the first time that Amazon has picked up stake in an offline venture in India. In October, Amazon had bought 5% stake in Shoppers Stop for $26.35 million (Rs 179.25 crore). With Future Group it will move the needle forward in its online-offline strategy.

But, Amazon is not the only player eying Future Retail — there are other suitors.

The other suitors

“If it was only Amazon alone, the deal would have happened much earlier… talks with some of the other companies are on but nothing has been finalised yet,” said the first source.

He added that Walmart and Alibaba are the other two companies in the fray to buy a stake in Future Retail. “Walmart has shown interest… Future (Retail) is evaluating the deal. After Flipkart’s acquisition, Walmart has become aggressive on India,” he said. Flipkart is the Bentonville headquartered retailer’s most expensive acquisition yet.

Future Retail which has been booking steady profits clocked Rs 463.62 crore of losses in Q4 on account of an exceptional expense of Rs 603.87 crore resulting from the demerger of Hypercity Retail (India).

Another person in the know of the matter said that some months earlier there were discussions between Walmart and Future Retail. “Some exploratory talks had happened but nothing is there on the cards right now,” the third source said.

Meanwhile, Alibaba, founded by Chinese billionaire Jack Ma, has also shown interest in the Future Retail. “The talks happened some time back, but we have not heard anything from Alibaba lately,” said a fourth source, a senior Alibaba executive.

Alibaba is an investor in Paytm* and Paytm E-commerce, run by Vijay Shekhar Sharma. Paytm Mall, part of Paytm Ecommerce, is an Amazon and Flipkart rival, albeit a smaller one. At its current state Paytm Mall has about 6% to 7% marketshare in Indian e-commerce, according to estimates.

Walmart, on the other hand, has already planned its next move with Flipkart, which includes helping Flipkart build a large food and grocery business and introduce new categories and services, among other products.

According to Doug McMillan, Walmart’s CEO, India is one of the two growth markets for the company. The other one is China. “If Walmart acquires a stake in Future Retail, it will have a dominating presence in Indian retail,” said Viswanath of Vertebrand.

Walmart and Alibaba have not responded to FactorDaily’s emails seeking clarifications on the development. An Amazon spokesperson said in a mail that the company doesn’t comment on rumours and speculation. Future Group, too, didn’t respond.

Why Future Retail?

Over the last few years, Kishore Biyani, often called the retail king of India, has spearheaded a series of acquisitions to consolidate leadership in India’s organised retail. Nilgiris, HyperCity, and Aadhaar from Godrej Group are just a few of them.

“Future has consolidated the market. There are only three big retailers left: Reliance Retail, D-Mart and Future Retail… Future is an attractive target,” said Abneesh Roy, senior vice-president (research) at ‎Edelweiss Capital.

The Future Group spread.

Roy added that Future and Amazon can be of use to each other. For example, Future Retail can learn from Amazon’s global sourcing business. On the other hand, Amazon in India can take the help of Future’s supply chain. Future Group has a fully-owned subsidiary called Future Supply Chain Solutions. It has a network of 46 distribution centres, which includes four temperature-controlled centres — spread out in a ‘hubs and branches’ model, covering 11,228 PIN codes.

Over the past five years Future Group has made huge improvements in its supply chain business, explains Roy. It also gets 35% of its business from garments and grocery and has a large number of in-house brands in 68 categories.

Amazon wants to build a build a large food and grocery business. The e-commerce giant’s India head Amit Agarwal told in a recent interview said that in the next five years 50% of its business could be from the category.

“Grocery retail is very important. Mobile phones and electronics don’t get the customer back on the platform every month, grocery does,” said Roy. For Amazon, the world’s ‘Everything Store’, that’s an important target.

*See disclosure.


Disclosure: FactorDaily is owned by SourceCode Media, which counts Accel Partners, Blume Ventures and Vijay Shekhar Sharma among its investors. Accel Partners is an early investor in Flipkart. Vijay Shekhar Sharma is the founder of Paytm. None of FactorDaily’s investors have any influence on its reporting about India’s technology and startup ecosystem.