Amazon in talks with smaller e-grocers to fix gaps in supply chain

Sunny Sen July 27, 2017

Amazon is looking to stitch partnerships with local e-grocers to improve the fill rate of its orders, said two sources in know of the matter.

For now, Amazon has fill rate of 90% to 92%, which means the company is able to provide nine out of every 10 products in any order. If we compare that with the two largest e-grocers in India — BigBasket and Grofers — both have fill rates in excess of 99%.

For now, Amazon has fill rate of 90% to 92%, which means the company is able to provide nine out of every 10 products in any order. Compare that with the two largest e-grocers in India, BigBasket and Grofers — both have fill rates in excess of 99%  

“Amazon has been in discussion with us, but the progress of the talks is very slow. They want us to fulfil their orders within a couple of hours,” said an executive with one of the companies Amazon has been in talks with. He wanted himself and his company to remain unnamed.

The US ecommerce giant launched Amazon Now in India in February 2016 to deliver groceries and home essentials within a couple of hours through a hyperlocal procurement model. It had then partnered with existing retail chains such as Modern Bazaar, Big Bazaar, and HyperCity, among others.

Also read: Walmart brings third dimension to India’s e-grocery war

Another source told FactorDaily that Amazon is yet to decide on the revenue sharing model, but still it feels that having e-grocers who have higher fill rates will make for better partners. “Online grocers not only have a larger inventory, if they are present in a smaller locality, they understand the need of that locality and can also be a backend support… It is not easy to build the supply chain in a short span of time,” the source said.

“Amazon has been in discussion with us, but the progress of the talks is very slow. They want us to fulfil their orders within a couple of hours” — an executive with one of the companies Amazon has been in talks with  

An email sent to Amazon remain unanswered.

Amazon’s hyperlocal procurement model helps place orders, connect with retailers who have the required inventory and fulfill logistics. This is how it works: when anyone places an order, the system quickly checks which retailers have the complete inventory and assigns the order to them, but it’s possible that none of the retailers in a particular area have the entire inventory, which causes the fill rate to dip.

The model will now expand to incorporate e-grocers as well to improve the fill rate. If the complete inventory is available with a particular e-grocer, the order will be transferred to that e-grocer. Once that’s done, the order will be fulfilled either by the e-grocer or by Amazon, depending on the availability of logistics support.

Amazon’s hyperlocal procurement model will now expand to incorporate e-grocers as well to improve the fill rate. If the complete inventory is available with a particular e-grocer, the order will be transferred to that e-grocer  

This will help Amazon build its fill rate fast. “E-grocery is a very different business, very different from regular ecommerce. While some e-grocers deliver orders the next day, Amazon promises delivery within two hours. That makes it even more complex,” said a consultant with one of the “big four” consultancy groups.

Also read: Patanjali to drive hard into ecommerce, in talks with Amazon, Flipkart, BigBasket

Amazon on July 11 got a nod from the government to invest $500 million in the food retail business. The government also cleared other pending proposals by Grofers and BigBasket to invest another $195 million in food retail.

Meanwhile, Amazon was also in talks with BigBasket for a possible acquisition. Later, FactorDaily reported that Paytm Mall was negotiating with BigBasket and looking to invest $200 million in the company to pick up a significant stake. It is not clear if the talks are still on. Flipkart, too, is keen to expand its footprint in the grocery business.

Grofers, on the other hand, has pivoted from a marketplace model to an inventory-led model, similar to what BigBasket does. After a shakeup in 2015 with closures such as LocalBanya and PepperTap, the e-groceries market has started getting a lot more attention from large ecommerce companies. After all, food and groceries put together is a Rs 23 lakh crore industry, and only 0.5% of that is online. By 2020, it is expected to almost double to over Rs 54 lakh crore, 2% of which will be online.

 


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.

Newsletter