Strategic Management (STM)

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With Aditya Birla's More in its cart, Amazon looks to take
Indian grocery retail by storm

What is this article about?

Amazon and national private equity firm Samara Capital purchased Aditya Birla food and
food chain More for about Rs. 4,200 crore. The agreement will allow ABRL (Aditya
Birla Retail Limited) to cancel its nearly Rs 4 billion in debt in March 2018. It is worth
noting that More is India's 4th largest distribution chain, second only to Big Bazaar,
DMart. and Reliance Retail .ABRL agreed to the transaction on Wednesday.

According to EF sources, while private equity firm Samara Capital has acquired most of
Aditya Birla's retail and food operations, Amazon.com's investment division has acquired
the remaining 49%.

In year 2018, ABRL recorded the first positive interest income of Rs. 100 crores before
interest rate depreciation. The company's turnover for the current fiscal year is 4,400
crore, an increase of 5%. His loss fell to 4.9 billion rupees. Sources told FusionExcel that
with the acquisition, the new owner of More will expand its distressed chain of companies
because of its high debt. It is forecasted that 100 to 150 different stores will be created
each year. There are currently more than 575 stores.

Arvind Singhal, president of Technopak, told FusionExcel: "We will see more and more
foreign investors will invest in the retail sector, and the food and grocery sector is turning
into a competitive segment like Flipkart, Reliance Amazon and Future Group. Market. In
addition, the transaction volume of about 4,000 rupees is not low and is not bad for
Amazon. "

The global retailer Amazon has entered the retail food and grocery business through its
Amazon Prime Now platform. Prime now is currently limited to Mumbai, and Bangalore
and Hyderabad.
Amazon’s purchase of More, what does it mean?

Amazon and Samara capital , a private equity firm have agreed to acquire
More, a food and food chain owned by the Aditya Birla Group, which
operates 20 large supermarkets and 523 supermarkets. The acquisition
doubled Amazon's strategy to expand its grocery and food retail business,
which has allocated around $500 million. The retail giant is negotiating with
Spencer's Retail Ltd, RP Goenka's supermarket chain, but the talks have
failed. According to Morgan Stanley, Amazon's entry into $60 billion retail
market makes sense because e-commerce accounts for only 2% of retail
sales.

What is Amazon’s strategy?

Amazon’s strategy is to get following benefits and to compete with Walmart and
Flipkart .They first “Identified the competition” and saw growth in offline retail market.
So they are following their competition.

Benefits to Amazon

-Food and grocery foray

Currently, Amazon Pantry's product portfolio and product portfolio for online
department store e-commerce retail division is limited to large cities and
certain categories. Under the agreement, Amazon's long-term goal is to
expand into India's F&G market (one of the world's largest markets), which
will become a top priority.

-Reach and brands

Scope and brand Nearly 20 million members belong to the "Clubmore"
program, the loyalty program. In addition to offering a variety of versatile
products on its 543 point-of-sale shelves, More also offers its own brand.

-Integration

In addition to F & G projects (including personal care, footwear, home care,

clothing, consumer durables and technology products), Amazon and other product
lines are closely linked. Therefore, in the future, Amazon will have a good position
in terms of revenue attraction and will also be able to achieve economies of scale.

-Brick-and-mortar expansion

In mid-year 18, Amazon acquired a $ 17.76 billion stake in Shoppers Stop, up 5

percent, through its subsidiary Amazon.com NV Investment Holding LLC. After
the publication of this news, Amazon will be able to create an experience center
and present its products at Pan-India Shoppers Stop.
In More the strategic investment has been achieved in a similar way. This will
allow Amazon not only to sell consumer goods online (through the door-to-door
option) and offline but also to explore new cross-selling opportunities (related to
non-food) in more stores.

-Competitive advantages

The deal should allow F&G space on Amazon's online to compete with
'Grofers' (supported by Softbank) and the 'BigBasket' (financed by Alibaba).
Compared to the other two, Amazon is a bigger, more well-known brand in
India that can take advantage of the brand's appeal to increase its market
share.

In F&G's offline retail environment, Amazon shall better compete with key
players in the industry, such as D-Mart , Reliance Retail and Big Bazaar,
which dominate the small business. Indian cities (areas where other stores are
located).

-Logistics

In reference to F&G delivery, a very strong distribution network became

extremely important given the perishability and sensitivity of certain
commodities. The last mile connection is one of Amazon's greatest strengths
and one of the main reasons for its success in India, which can be optimally
utilized.

The Aditya Birla Group’s Strategy

The proceeds from the transaction will be used to reduce Aditya Birla Retail's
current debt by around 4,000 crore. Despite the series of measures (store
losses, rent adjustments, store resizing, indirect cost control), the
performance of several outlets has recently shown signs of improvement, but
historically, breakthroughs have been a challenge.

By relinquishing its F & G retail division, the Kumar Mangalam Birla group
is now able to consolidate its organizational structure and give greater
attention to companies that believe growth prospects are relatively good.
These different areas include cement (Ultratech Cement, Grasim
Industries ), telecommunications (Idea Cellular), metal (Hindalco
Industries) , finance (Aditya Birla Capital) .

Amazon’s challenges to follow this strategy

Although Amazon has everything it has gained from this purchase, it will
face obstacles in the process. F&G's activities are essentially the normal loss
due to waste and quality degradation.

The consumer staples and consumables division, despite attracting a large

number of people into the store, is still a low-margin part. In fact, it is
necessary to make regular discounts on products to eliminate inventory in
stock and to fight fierce competition (especially in the kirana store in the
geographical area). This, in turn, requires high marketing costs.

Cutting-edge infrastructure challenges such as warehousing and refrigeration

will involve a high level of attention in the initial phase.

In order to promote the expansion of 100 to 150 additional stores (mainly

adjacent supermarkets) each year, the recent upward trend in the distribution
of rental costs will be very high.

Future path of this Strategy

In appearance, Samara Capital's investment reasons suggest that in the long

run the optimism associated with consumer industries has increased.

In summary, the basic theme of this growth path chosen by Amazon-Samara

is that online and offline retail mechanism will continue to coexist, even at
the speed of it. Because both formats have their own advantages, the
integration of both can ideally be applied to any retailer for a long time.

However, only future will tell if Amazon, with its significant resources, can
compete with its major competitors in a market segment (F & G), where store
cost rationalization, working capital optimization and High conversions can
make difference.