Amazon is having problems in India

About two years ago, the VC firm was evaluating an investment in a fast-paced commerce startup in India. The company’s instant-delivery model was showing signs of success in the South Asian market, even as many startups in the space struggled in developed markets.

But the company was wary: Could Amazon swoop in and dominate this nascent sector with its muscle, scale and resources? To be sure, a partner at the venture capital firm reached out to a few of his friends in Amazon’s management and came away with the feeling that the e-commerce giant had no plans to offer a fast-paced retail offering in India.

Amazon’s move now looks like a major mistake. Instant commerce is increasingly gaining popularity in India, giving customers access to a range of categories from groceries to electronics that they can get delivered in minutes. The top three instant commerce companies—Zomato’s BlinkIt, Zepto and Swiggy’s Instamart—are now on track to have annual sales of about $4.5 billion combined. That’s a quarter of Amazon India’s sales, which brokerage JM Financial estimates at $18 billion.

Amazon appears to have completely ignored this growing market.

A missed opportunity

India, the world’s most populous country, is a key overseas market for American tech giants. Yet despite tens of billions of dollars in investment over the past 15 years, the country’s e-commerce market grew only 11% to 12% last year, according to industry estimates. The fast-paced retail market, by contrast, is growing by more than 125%—much of that, of course, is due to its small size, but it’s hard to miss the opportunity.

Bernstein e-commerce analyst Rahul Malhotra said these companies are “clearly taking share” from larger e-commerce companies, adding that this raises questions about how traditional e-commerce giants will respond.

The categories these e-commerce companies operate in — grocery, home and kitchen appliances, electronics, and sometimes even smartphones — are often some of the biggest drivers of traffic and sales for e-commerce companies, which can leverage that traffic to cross-sell and upsell products to those customers, the founder of a leading e-commerce company told TechCrunch.

And as fast-paced retail companies see their sales and market share skyrocket, they can use their newfound strength to secure better deals with different brands. Fast-paced retail companies are also changing shopping behavior in India’s 10 largest cities, according to research from Bank of America and Bernstein.

Amazon has done little to capitalize on this opportunity. The company hasn’t launched any fast-trading offerings; instead, it has mocked companies that deliver “fast” in its ads. That stance seems increasingly out of touch with reality as the market evolves in developing countries like India. BlinkIt, which Zomato acquired for less than $600 million in 2022, is now worth more than $13 billion, according to Goldman Sachs. That’s more than half of Amazon India’s estimated value.

Walmart-owned Flipkart, Amazon’s main rival in India, has been quicker to respond, though some say it’s still a bit late to the game. The company has lagged Amazon in urban Indian markets but this week launched its own fast-track offering, called Flipkart Minutes, in a move seen as a strategic play to woo Amazon India’s urban shoppers.

Analysts say Amazon’s decision not to innovate quickly in the sector is just one in a series of stumbles in India. The company has been losing market share in the country for more than three years — a trend that has become especially apparent since the abrupt resignation of Amazon India chief Manish Tiwary earlier this week.

As Malhotra told TechCrunch, Amazon has failed to capitalize on gaps in fast-paced retail, second-tier markets, and categories like apparel.

Meesho, a social commerce platform backed by SoftBank and Prosus, has made deep inroads into smaller cities and towns in India in just a few years. The company now has a larger share of the mobile app market than Amazon in India, Morgan Stanley analysts wrote in a note this week. Flipkart’s apps have more than 50 million daily active users in India, while Amazon has less than 40 million, according to Bank of America analysts.

E-commerce growth in India is increasingly being driven by smaller cities, with 80% of Meesho’s customers coming from tier 2 and above, the startup said in a report on Thursday. Tier 2+ cities have overtaken larger urban centres in terms of purchasing electronics accessories for the company, the report added.

A matter of priorities

Industry executives familiar with Amazon’s inner workings suggest the e-commerce giant has changed its strategy in India. Under Andy Jassy’s leadership, the company appears to be prioritizing its cloud business.

The shift was given some public justification when Jassy said last year that Amazon would invest $15 billion in the country by 2030 — $12.7 billion of that is earmarked for AWS operations and expansions. Walmart and Flipkart, meanwhile, invest more than $1 billion annually in their e-commerce operations in India.

Amazon has also struggled with slow adoption by sellers in the country, despite investing hundreds of millions in the strategy, the analyst said. This limited pool of potential sellers limits the growth and scalability of Amazon’s platform in a country with a large population and diverse consumer demands.

The last five years have been particularly difficult for the company in other ways, too. The Indian government added tough restrictions on how e-commerce companies operate in 2019, forcing Amazon to change how it does business with sellers. Reuters reported in late 2022 that Amazon had been giving preferential treatment to a small group of sellers in India, publicly misrepresenting its ties to those sellers and using them to circumvent the country’s foreign investment laws. (Amazon said at the time that Reuters’ reporting appeared to be based on unverified, incomplete, and/or false facts.) Then the company lost a high-profile takeover battle over Future Group, then India’s second-largest retailer, to Reliance.

The episode prompted Bernstein to say that Amazon faces an “unfavorable” regulatory environment in India.

But Malhotra, the author of the aforementioned report, now believes that regulatory failures cannot be the sole reason for Amazon’s problems in the country. “They were not strategic enough. And the founders – be it Deepinder (Zomato), Aadit (Zepto), Vidit (Meesho), or the Flipkart team – outperformed the (Amazon) management team,” he added.

That’s not to say that Amazon hasn’t tried to grow and expand. The company is still trying to make a dent in the mobile payments market in India with its Amazon Pay product, and it also tried its hand at food delivery, but ultimately shut that venture down. The company has also shuttered its wholesale distribution business, as well as its foray into online education in the country.

Amazon is also increasingly trying to serve more Amazon Fresh customers within two to three hours and is still maintaining the QVC-style shopping experience it introduced on the app last year.

But the analyst, who asked not to be named, said he was skeptical about Amazon’s ability to bounce back because the company, which continues to make losses in India, has already invested too much capital in creating a kind of supply chain system that cannot adapt overnight to changing consumer shopping habits.

Asked to comment on the sales figures, an Amazon spokesperson said company data and external reports showed that Amazon.in is “the most trusted online shopping destination in India.” The spokesperson added that the information “shared by TechCrunch was false and unconfirmed.”