Amazon's Missed Opportunity in India's Quick-Commerce Boom

Two years ago, a venture capital firm was considering investing in a quick-commerce startup in India. The startup's instant delivery model was thriving in the South Asian market, even as similar ventures struggled in developed regions.

However, the firm hesitated, wondering if Amazon might enter and dominate this emerging sector with its vast resources. To clarify, a partner at the VC firm consulted friends in Amazon's leadership and concluded that the e-commerce giant had no plans for a quick-commerce offering in India.

This decision now appears to be a significant oversight. Quick-commerce is rapidly gaining traction in India, offering customers a variety of products, from groceries to electronics, delivered within minutes. Leading quick-commerce companies like Zomato's Blinkit, Zepto, and Swiggy's Instamart are projected to achieve combined annual sales of approximately $4.5 billion, which is a quarter of Amazon India's sales, estimated at $18 billion by JM Financial. Amazon seems to have missed this growing market entirely.

An Overlooked Opportunity

India, the world's most populous country, is a crucial market for U.S. tech giants. Despite substantial investments over the past 15 years, India's e-commerce market grew by only 11% to 12% last year, according to industry estimates. In contrast, the quick-commerce market is expanding at over 125%. Although this growth is partly due to the market's small size, the potential is undeniable.

These quick-commerce firms are capturing market share from larger e-commerce companies, according to Rahul Malhotra, an e-commerce analyst at Bernstein. This shift raises questions about how traditional e-commerce giants will respond.

The categories these instant commerce firms cover — groceries, household and kitchen equipment, electronics, and sometimes smartphones — are significant traffic and sales drivers for e-commerce businesses. These businesses can then use this traffic to cross-sell and upsell other items, as noted by the founder of a leading e-commerce firm.

As quick-commerce companies expand their sales and market share, they can negotiate better deals with various brands. Surveys by Bank of America and Bernstein indicate that quick-commerce firms are also changing buying behavior in India's top 10 cities.

"There has been a visible shift of Amazon India customers to quick commerce," tweeted Gopal Kolli, founder and CEO of Solara, a premium home and kitchen products brand. "For most brands, including Solara Home, the share of quick commerce grew from 0 to 20% in the last year (much higher for other categories). Many of these are Amazon customers moving to quick commerce."

Amazon has notably done little to address this opportunity. The company has not launched any quick-commerce offering and has even mocked firms that deliver "quickly" in its advertisements. This stance seems increasingly out of touch as the market evolves in developing countries like India. Blinkit, acquired by Zomato for less than $600 million in 2022, is now valued at over $13 billion, according to Goldman Sachs. This valuation is more than half of Amazon India's estimated worth.

Walmart-owned Flipkart, Amazon's main competitor in India, has been quicker to respond, though some argue it is still somewhat late to the game. While Flipkart trails Amazon in urban Indian markets, it recently launched its own quick-commerce service, Flipkart Minutes, aiming to attract Amazon India's urban customers.

Analysts believe Amazon's slow innovation in this sector is just one of several missteps in India. The company has been losing market share for over three years, a trend highlighted by the recent resignation of Amazon India's head, Manish Tiwary.

Amazon has struggled to capitalize on opportunities in quick commerce, tier 2 markets, and categories like apparel, according to Malhotra.

Meesho, a social commerce platform backed by SoftBank and Prosus, has made significant inroads in smaller Indian cities and towns in just a few years. The platform now has a larger market share in the mobile app space than Amazon in India, according to Morgan Stanley analysts. Flipkart's apps have over 50 million daily active users in India, compared to Amazon's fewer than 40 million, according to Bank of America analysts.

E-commerce growth in India is increasingly driven by smaller cities, with 80% of Meesho's customers coming from tier 2 and beyond, the startup reported. Tier 2+ cities outpaced larger urban centers in electronic accessory purchases for the firm, the report added.

A Matter of Priorities

Industry insiders suggest that Amazon has shifted its strategy in India under Andy Jassy's leadership, prioritizing its cloud business. Jassy announced last year that Amazon would invest $15 billion in India by 2030, with $12.7 billion allocated for AWS operations and expansions. In contrast, Walmart and Flipkart are investing over $1 billion annually in their e-commerce operations in India.

Amazon has also faced challenges with the slow pace of merchant adoption in the country, despite significant investments. This limited pool of sellers restricts Amazon's growth and scalability in a country with a large population and diverse consumer demands.

The past five years have been particularly challenging for Amazon due to various factors. The Indian government imposed strict regulations on e-commerce operations in 2019, forcing Amazon to adjust its business model. Reuters reported in 2021 that Amazon was giving preferential treatment to a small group of sellers in India, misrepresenting its ties with them, and using them to circumvent foreign investment rules. Amazon denied these allegations. Additionally, Amazon lost a high-profile battle to acquire Future Group, India's second-largest retail chain, to Reliance.

Bernstein noted that Amazon faces an "unfavorable" regulatory environment in India.