Amazon, Goldman May Buy Large Indian Grocery Chain

Amid growing encroachment into each other’s territories, offline and online retail players are making big, strategic moves aimed at improving profitability. The retail space in one of the leading emerging markets, India, is getting hot. Few months back, Walmart Inc. (WMT) bought India’s leading online retailer Flipkart for $16 billion, and other players are attempting to build out their own turf. (See also: Walmart Buying 77% Stake in Flipkart for $16B.)

Amazon.com Inc. (AMZN), the world leader in online retail, may join hands with investment bank Goldman Sachs Group Inc. (GS) and homegrown private equity firm Samara Capital to form a consortium to purchase Aditya Birla Group’s food and grocery supermarket chain More at an enterprise valuation of $64.4 million to $71.6 million, according to the Economic Times. Around the end of June, Samara and Aditya Birla Retail Ltd. signed an exclusivity agreement for bilateral dealings. Samara is reported to have approached Amazon and Goldman to build the consortium.

According to people familiar with the matter, the three partnering firms will float a new company as a special purpose vehicle (SPV). Amazon, as a strategic partner, is expected to take a 49% stake, while the remainder will be split between the other two firms. Details are expected to emerge over the next few weeks as the structuring is in final stages. Indian law allows foreign companies to hold a maximum of 49% stake in multibrand retailers, though the foreign companies can own 100% stake if they create holding entities in cash-and-carry retail segment. The latter option allows local groups and entrepreneurs to operate the stores as their franchisees. 

Amazon Continues Big Investments in India

Amazon continues its planned investment in its Indian unit. It has committed a total of $5 billion investment, of which it has investment $4 billion over last five years.

This will be Amazon’s second direct investment in the Indian brick-and-mortar retail segment. In September 2017, it picked up a 5% stake in India’s leading department store chain, Shoppers Stop Ltd., for around $25.74 million. With intentions of launching a fully-owned food retailing venture in India, Amazon has earlier floated a local company called Amazon Retail India Pvt. with investments of around $14 million. However, the venture is yet to take off owing to lack of clarity in policies.

While trying to fend off competition from Walmart, which acquired homegrown Flipkart, Amazon may find the right partner in More to build and cement its long-awaited retail store presence. The Seattle-based company will also face competition from another major Indian company, Reliance Industries Ltd., which plans to develop a hybrid, “online-to-offline new omnichannel commerce platform” combining shopping together with its telecom services called Reliance Jio. Chinese giant Alibaba Group (BABA) is also seeking local partners for its retail entry in India.

More operates close to 500 More branded supermarkets and 20 hypermarkets that cover more than 2 million square feet of retail space. Based on the number of stores, More is the fourth-largest retail chain in the country behind Future Group, Reliance Retail and DMart. It continues to be a loss-making entity, though it has achieved store-level EBITDA breakeven by focusing on major markets in metro cities.