FDI To Aid Ecommerce Firms Expand Food And FMCG Sectors


Ten years after Amazon began the experiment with groceries at its Seattle home; the US e-commerce company is set to start selling farm produce, lentils and milk in India once it receives the government’s approval for its wholly-owned foods unit.

Amazon Fresh, a business that owes its genesis to a 2007 move by the online retailer to offer Seattle area resident’s doorstep delivery of a limited selection of groceries, awaits Foreign Direct Investment approval before it can sell locally. Besides groceries, Amazon India will continue to invest heavily in the fast-moving consumer goods (FMCG) business for a few more years, according to the Director, FMCG category management, Saurabh Srivastava.

Amazon proposes to stock and market farm produce, lentils and milk in India once the permit is received. The food chain will directly serve the products at the customer’s doorstep and add more value to the products. Talking about the ambitions for the Fresh initiative, Saurabh Srivastava, Director FMCG category management at Amazon said,

We will maintain the entire supply chain directly and right sourcing will be the key. Such value was not possible to be delivered had the government not liberalized the FDI policy.

FMCG Growth in Amazon

The FMCG category is one of the fastest growing at Amazon and the largest in terms of units sold. There are over 9,000 sellers for FMCG products at present and the business has grown by 165% last year over 2015. Amazon currently sells 1.9 million FMCG products across categories.

What Does The Sector Look Like?

Food and grocery is the single largest segment of the overall Indian retail pie, representing 67 percent of the $616 billion market. India’s smaller towns and cities are expected to contribute more in shaping future demand for the fast moving consumer goods sector, while e-commerce companies will contribute increasingly larger share of sales for such companies.

Other Players In the Foray

Last year, giving a much-needed boost to retailers and grocery startups such as Bigbasket and Grofers, the government had allowed 100 percent FDI in food retail, including through e-commerce, provided such items are produced, processed or manufactured in the country. Retail giants such as Walmart will look to operate more into B2C food retail after its partnership talks with Flipkart. The move had aid Indian hyper-local grocery startups to raise funds more easily.

But the catch for grocery startups was government’s move allows FDI in only retailing of food products, while most grocery startups sell household items such as soap and incense sticks apart from food.

FDI norms may be eased for multi-brand retail

Global retailers have found the existing “food only” rule restrictive and not commercially attractive enough for them to commit millions of dollars in setting up outlets in Asia’s third largest economy.

However, under the new rules, apart from grocery and food, these supermarkets may be allowed to sell soaps, shampoos, cosmetics and toiletries provided the value of personal care products do not exceed 20-30 percent of food merchandise sold through each of the outlets, sources said. While foreign retailers will have to manufacture food products in India, they will also likely be asked to mandatorily invest at least 15 percent in local back-end infrastructure such as cold chains.

The move on allowing multi-brand non-food retail, once implemented, will effectively open up India’s lucrative $10 billion home and personal care (HPC) market for foreign deep-discount retailers, bringing them in direct competition with consumer goods companies such as Godrej, Dabur, Colgate-Palmolive and yoga guru Baba Ramdev-promoted Patanjali Ayurved.

Ecommerce firms have significant physical footprint in terms of distribution capability and in their ability to do last mile delivery at scale. Food and FMCG sector can certainly benefit from the same.