Amazon and Reliance Battle for Grocery Store Supremacy in India

Amazon and Reliance Battle for Grocery Store Supremacy in India

E-commerce giant Amazon and the Indian conglomerate Reliance are battling for grocery store and retail shop supremacy. The two companies have locked horns over a deal that was struck between Reliance Industries and the retail group Future Group. The goal of each party is either to capture a network of the popular grocery store and retail shops in India or make sure their competitor does not get access to this chain of stores. This comes in the heals of Amazon blowout earnings which show that the company is firing on all cylinders.

Continued Outperformance

Amazon is expanding operations around the globe with a focus on India. Those who invest in the company and trade stocks can attest to the amazing outperformance of the shares which are up approximately 70% in 2020.

The company’s financial results were much better than anticipated. Amazon’s Q3 earnings experience a huge boost from pandemic sales that assisted the company in tripling its profits amid a 37% increase in earnings. Amazon reported revenues of $96.15 billion which were better than expected and its net income increased to $6.3 billion in the Q3, compared with net income of $2.1 in the same quarter in 2019. Its cloud-services unit, Amazon Web Services, reported net sales of $11.6 billion in the Q3, up 29% year over year. The robust returns came despite the company spending $4 billion on coronavirus-related measures, as well as providing its employees with wage increases. Amazon announced that it was anticipating a stellar holiday shopping period, and provided guidance of $112 billion to $121 billion, which was above analyst expectations of $112.7 billion.

Locking Heads with Reliance

Amazon is fighting a $3.3 billion deal struck between Mukesh Ambani's Reliance Industries and the Indian retail conglomerate Future Group.

What's at stake is strategic access to a network of popular grocery stores and retail shops in India something both Amazon and Reliance want to either have for themselves or to prevent the other from acquiring.

Reliance has ambitions to use JioMart to infiltrate the grocery store and retail business. Currently, Amazon has a 31.2% market share in India's e-commerce industry, just behind Walmart-owned Flipkart's 31.9%. Future Group, which is at the heart of the battle includes brands which include the retail unit Big Bazaar, a well-known, popular hypermarket chain in India. In August 2019, Amazon invested in a Future Group entity that gave it a roughly 4.8% stake in Future Retail as of September 30. The deal gave Amazon the right of first refusal to acquire more shares in Future Retail.

Subsequently, Reliance and Future Group announced that Reliance was buying Future Retail and several other assets. This announcement surprised market participants as well as Amazon who responded by filing a complaint to the Singapore International Arbitration Centre.Amazon argued that the 2019 deal that it struck between it and the Future Group entity included a non-compete clause. The deal with Reliance and Future group violated that clause according to Amazon. The arbitration gave Amazon a small victory this week when it ordered a temporary halt on Future Group's deal with Reliance.Future Group had argued that if the deal with Reliance falls through, its retail unit will be forced into liquidation and 29,000 people will be fired.

The Bottom Line

Amazon and Reliance are in a fight for an important retail chain that will decide the future landscape for retail grocery shopping. Amazon is firing and all cylinders following robust financial results and is looking to expand its presence in India. Reliance for its part is pushing forward to make its presence in the retail market.