Online Groceries Set For Strategic Investments As Govt Approves 100% FDI In Food Retail

Existing players in the Indian online grocery business are expected to make strategic investments in supply chain and food processing units following the government’s move on Monday to allow 100 per cent foreign direct investment (FDI) in food retail, including through e-commerce, provided such items are produced, processed or manufactured in the country.

In the past, Indian online grocery players such as Bigbasket, Grofers, and ZopNow have been facing logistics and supply chain pressures, as a result of which, some like LocalBanya have shut shop and others like ZopNow has moved from an inventory-led to a marketplace model. The new FDI policy is expected to ease their burden.

At the same time, US-based e-commerce giant Amazon is likely to pump in more money into its online groceries unit ‘Amazon Now’. Recently, Amazon founder and CEO Jeff Bezos announced an additional investment of $3 billion in India and with the government’s new FDI policy, a significant portion of this investment may be pumped into its groceries business.

While Amazon did not specifically comment on its investment in the groceries unit, a company spokesperson said, “We welcome the move by the government of India to permit 100 per cent FDI in trading, including e-commerce, of food products manufactured or produced in India. We believe this will positively impact the food and food processing industry to reach a wider customer base with ease.”

The policy has been welcomed by the industry as it opens up the Indian food market in general. Also, the only rider is perhaps that the food items should be produced, processed or manufactured in the country. “This shouldn’t be difficult to comply with as barring a few items, most of the groceries will be invariably produced in India,” Pragya Singh, Vice President at advisory firm Technopak told BW Businessworld.

However, it also important to note that food contributes about 60-70 per cent of the overall product portfolio of most online grocery players while the rest is in the non-food category. The case is no different for players in the traditional brick-and-mortar space. With the new FDI policy, these companies might have to restructure their business models to take maximum advantage of the new policy, Singh said.

The food and grocery industry in India is now worth $383 billion and is expected to touch $1 trillion by 2020, according to a study by Technopak. This clearly is too large a market to ignore so even bigger players like Chinese e-commerce major Alibaba Group may look to foray into this space, either directly or through Paytm or Snapdeal in which Alibaba currently owns about 40 per cent and 5 per cent respectively.