And, the deal is almost done. Amazon, world’s largest ecommerce player has agreed to buy 9.5% share in Kishore Biyani led Future Retail.
This is Amazon’s third biggest deal in the offline space, after Shoppers Stop and More Retail.
As per sources, Rs 2500 crore is the estimated value of this unique partnership.
Unique, because Future Retail is a hardcore offline player, and Amazon is an online portal. What can we derive from this deal?
And should Paytm, Flipkart-Walmart be concerned?
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Amazon-Future Retail Partnership: How This Will Happen?
As per a report by ET, the deal between Amazon and Future Retail has been finalized, and the term sheet already created. However, both will officially announce the deal on November 14th.
At the time of writing, both Amazon and Future Retail have refused to comment.
As per ET, Amazon will use their business division which is registered as FPI or Foreign Portfolio Investment, in order to acquire 9.5% stake in Future Retail.
Under present FDI rules, an FPI can acquire less than 5% stake in any Indian firm, but an Indian firm can dilute upto 49% stake in multiple FPIs.
Last year, when Amazon acquired 5% stake in Shoppers’ Stop, the same FPI route was chosen.
Why Should Flipkart, Paytm Be Concerned?
Reason #1: Biggest Online-Offline Push
Future Retail is right now one of the biggest offline retail chains in India – only Reliance Retail can compete with the might of Future Retail.
Last year, Future Retail reported a turnover of Rs18,477 crore ($2.7 billion), and they have a market cap of Rs 25,000 crore.
Across 339 cities, Future Retail collectively owns 14.8 million square feet of shopping place, across 1123 stores.
Now, if Amazon enters into a strategic partnership with Future Retail, then it means Amazon will have direct access to this massive expanse of offline retail.
And, 95% of India’s retail still happen via offline route.
Both Paytm and Flipkart won’t have this leverage, which Amazon will have. Last month, Amazon had acquired More Retail, which makes their position in the offline retail space as formidable.
One big advantage of Amazon over Flipkart is that, although Walmart has acquired Flipkart, they cannot open multi-brand retail outlets. Unlike Amazon, who will have access to Future Group’s massive offline presence, covering 11,500 PIN Codes, and More Retail, Shoppers Stop as well.
Reason #2: Data, Data and Data!
Amazon’s Rs 2500 crore investment into Future Retail will also give them access to the enormous amount of data related with retail customers, which Future Retail have.
Approximately 500 million customers have used some of the other services of Future Group, and can be a customer of Big Bazaar, Pantaloon, HyperCity, Nilgiris and tons of other offline brands that it operates, owns or have a stake in.
At a time when Reliance, Paytm, Alibaba, Flipkart, Walmart, everyone is looking into expanding their online-offline presence, this data can prove to be the wildcard for Amazon.
Reason #3: Advantage Food and Grocery
Future Retail has created a business model, wherein he is making profits from the sale of food and grocery items. Their outlets (say EasyDay, Nilgiris) are located at strategic locations, which makes shopping from them easy.
And Amazon desperately wants to capture this segment.
Food and Grocery niche, is one of the fastest growing sectors in the ecommerce segment, and by 2020, it will experience 140% growth. 12.5% of overall online retail is food and grocery, and analysts peg this as $15 billion industry.
Imagine the leverage and power which Amazon will now yield, over rivals Flipkart and Paytm, as both of them are struggling to make inroads into the offline market. Besides Future Retail, Amazon also owns More Retail now!
We will keep you updated, as more details come in.