Amazon’s Next Retail Moves
“I don’t think [Amazon.com] wants to own a piece of retail, they want to own all of it.”
— Scott Galloway, a professor of marketing at NYU’s Stern School of Business.
The Food-Tech business in India has been a risky venture since it firmly established itself in 2015. A cohort of food delivery start-ups that envisioned India as a profit-making market have bellied up in the last 5 years, leaving behind a duopoly- Swiggy and Zomato.
The recent crisis of coronavirus has left Swiggy and Zomato to dodge a bullet. A bullet of reduced profit margins. Both of them have reduced their workforce by more than 1,600 and have had to cut down operations in certain areas as orders are merely 30–35% of pre-COVID times.
Meanwhile, an e-commerce giant is sowing seeds for the future as it gears up to challenge the duopoly. A company with gargantuan brand equity Amazon has decided to step in the food delivery space and expand its already widened portfolio in India.
Amazon Food has an ongoing pilot run in Bangalore since mid-march. It includes only handpicked restaurants that have passed their high hygiene standards. People who are afraid of ordering food thinking it might be unhygienic are attracted to this. Amazon also has a special reputation for home deliveries due to its large e-commerce operations.
But does this make it easy for them to capture the market? No.
The food delivery industry has a high customer acquisition cost. Consumers prefer apps that offer them better discounts rather than sticking to one app for ordering food. So, advertising is a must. Both Swiggy and Zomato have raised more than $2 billion together and spend nearly $15 million each month on acquiring new customers and sustaining the existing ones, but are still not profitable. However, due to the already existing reputation of Amazon, customer acquisition cost would be less.
Moreover, Amazon has asked moderate commissions of 5–6% from their restaurant partner while Swiggy and Zomato have gone as high as 30%. Restaurants would prefer getting listed in Amazon Food and will maintain high hygiene standards which are being preferred by the customers.
But there still is an issue. Figuring out a profit-making food delivery business is hard in India. In the US, where the value of each delivery item is about $35, in India, the value is only $4. This significantly reduces the margins of food delivery companies. Paying the delivery boy, paying for the packaging, and paying for the technology is not worth a small margin from $4. Perhaps due to this reason, Swiggy and Zomato have both expanded in recent years outside the delivery domain.
Amazon had started Amazon Pantry and Amazon Fresh for online grocery orders, unfortunately, it did not have an impact. With Amazon Food and its news hands in the food delivery market, consumers could be in for great discounts and price cuts shaping a large customer base that would prefer buying groceries online through Amazon Pantry and stay safe at home :)
Leave alone food-delivery, Amazon’s success in food-delivery will create a sense of comfort amongst its consumers that they can rely on Amazon, maybe giving them a cut above their eCommerce competitor Walmart-owned Flipkart in the retail space.
