Why Amazon wants to conquer India

With a prize of 1.3bn customers, the battle to convert consumers to online is hotting up, say Brad Stone and Saritha Rai.

Why Amazon wants to conquer India

With a prize of 1.3bn customers, the battle to convert consumers to online is hotting up, say Brad Stone and Saritha Rai.

Like many neighbourhood stores in India, the Sri Lakshmi Venkateshwara kirana is tiny and cramped.

Single-rupee shampoo packets and bags of potato crisps hang from ceiling hooks.

Jars full of colourful sweets and sesame brittle sit on the counter. Sacks of rice and lentils are stacked waist-high, occupying nearly every square inch of the floor.

It may not look like it has much merchandise, but this kirana, in the southern village of Madikere, sells practically everything.

Last year, the shop’s 27-year-old owner, Gangadhar, joined thousands of other small Indian retailers in partnering with Amazon.

While cows and roosters ramble outside on the dirt lane and women walk by with bales of hay balanced on their heads, Gangadhar uses a smartphone to display Amazon’s selection to villagers and show them how to find things and get the best prices.

“I’m the person between Amazon and the people who shop online,” he says proudly.

Enlisting local shop owners as envoys for online buying is part of Amazon’s foray into India, one of the last frontiers of e-commerce.

India has a population of 1.3bn, hundreds of millions of whom now own smartphones and who are just getting their first glimpse of the cornucopia of consumption that’s accessible online.

Winning here is all the more important, after Amazon bombed in another immense market, China.

Reaching customers in India isn’t easy. No country is more colourfully, anachronistically, chaotic. Local roads are rutted with potholes and cluttered with motorcycles, auto rickshaws, and stray dogs.

Making deliveries requires Mad Max-level driving skills. Four out of five Indians earn wages in cash; credit cards are rare, and trust in transacting online has to be earned.

A quarter of the population lives in poverty, and a similar proportion is illiterate. Still, the country’s middle class is growing, which is why risk-tolerant retail giants want in.

Amazon’s goal is to “transform the way India buys and sells”. Anodyne language aside, this is a massive undertaking that, as usual with early-stage Jeff Bezos projects, is massively unprofitable.

His company lost $3bn (€2.6bn) on its international efforts last year, and much of that was in India. In May, Walmart spent $16bn to acquire Amazon’s primary rival in India, the homegrown online retailer Flipkart Online Services Pvt.

Alibaba Group Holding is also here, with an investment in a popular online retailer, called Paytm E-commerce Pvt, as well as a stake in the country largest online grocer, BigBasket.

All this action is almost enough to make Bezos, Amazon’s founder and the wealthiest man in the world,a household name in one of its remotest places. Almost.

“I don’t know who Jeff Bezos is,” says Gangadhar, standing outside his kirana, under an awning for shade. “But if he’s made it convenient to shop from this village, he ought to be the richest.”

On the first day of each month, Gangadhar distributes leaflets around his village, listing Amazon’s deals on exotic global brands, such as Pampers, Gillette razors, Olay moisturiser, and Pillsbury cake mix. “Don’t be scared of online shopping. Make friends with it,” the handout counsels.

When his customers order by 12 noon, Amazon delivers packages to the store the next day, via a logistics company called StoreKing.

When packages arrive, as a small box addressed to a tea-shop owner named Appaji did on a recent afternoon, Gangadhar leaves his wife at the store and he makes deliveries on foot. He grew up in the village and knows almost everyone by name.

Gangadhar’s deliveries can have the feel of a parade, with other villagers trailing him on his errands. When the procession reaches Appaji’s tea shop, where a half-dozen older men squat in darkness on floor mats, while sipping from small cups, the proprietor says the package is for his daughter, and Gangadhar and his entourage continue on to the Appaji home, nearby.

There, in a windowless living room, where a ceiling fan whirs and a small TV blasts news and commercials in the local language, Akshatha, 17, receives the Amazon box with trembling hands and opens it.

It’s a Moto G 5s, her first smartphone, which cost around $130. It’s a significant purchase for the shop owner, who sells cups of tea for 4 rupees (about 5c) and who pays the kirana owner in cash.

Later, Akshatha reports that she signed up for WhatsApp, shared selfies with friends, and became an aspiring Amazon customer.

“I hear every product shown on TV is available,” she says.

For my birthday, in December, I’m already thinking what to ask my parents to gift me from Amazon.

Amazon opened its Indian website in June 2013.

The group running the site, a team of Indian-born engineers who had worked at Amazon’s headquarters in Seattle and were persuaded to return home, stored and shipped products from a single, 140,000-square-foot warehouse in a crowded suburb outside Mumbai.

Bezos told the team to “think like cowboys, who are wild and fast and a little bit rude, and not like computer scientists,” according to Amit Agarwal, head of the India operation.

That translates as “it was OK to make mistakes. It’s important that you control your destiny and move fast,” says Agarwal, a former Bezos “technical adviser” (Amazon lingo for an executive shadow).

Agarwal speaks in the narrow lexicon of the company’s public pronouncements, extolling the holy trinity of price, selection, and convenience.

He’s such an avowed Amazonian, in fact, that when the India division opened, he shipped his door desk — a cherished symbol of frugality at Amazon — halfway across the world to his new office.

About a year after the launch, Bezos visited for a grandiose public unveiling of Amazon’s investment plan. He insisted on presenting an oversize, $2bn check to Agarwal while riding an elephant (a mystical symbol in India that represents wisdom and strength).

But all the elephants were occupied in a regional religious festival at the time, and colleagues had to persuade him to conduct the exchange atop a heavily decorated truck.

“I think God takes priority over Jeff,” Agarwal says.

Amazon now has more than 50 fulfilment centres in India. The main office, in Bengaluru (formerly Bangalore), is in a modern tower ringed by security checkpoints.

In the lobby, there’s little to mark the presence of Amazon, save a small blue sign and three Fire tablets sitting on a reception desk. Upstairs, inspirational, if unsettling, Bezos quotations line the walls: “Day 2 is stasis, followed by irrelevance, followed by excruciating, painful decline, followed by death.”

Amazon followed a familiar playbook in India. Prime was introduced in 2016, offering two-day shipping everywhere in the country. Membership costs 999 rupees, or around €12 a year, and members can watch free shows, such as the standup comedy competition series, Comics than.

As it has in other countries, the company introduced Pantry, with a selection of snack foods, beverages, and household items, and, in a handful of cities, Prime Now, offering fresh food and produce within two hours.

But everything was harder in India. Amazon realised early on that it couldn’t depend solely on such logistics partners as the India Post, the federal mail carrier.

So it created its own network of couriers in vans, motorcycles, bikes, and even boats, to reach the remotest parts of the country, such as the river islands in eastern Assam.

Like its rival Flipkart, Amazon accepts cash on delivery, since few shoppers have access to credit cards.

Customers have the option to deposit change from a cash transaction as credit in their Amazon accounts, one of the company’s many efforts to get people more comfortable with the idea of digital payments.

One of Amazon’s biggest challenges has been simply getting Indian merchants comfortable with selling online.

Foreign retailers that sell multiple brands are prohibited by law from selling anything other than food directly to consumers, which means everything on the Amazon.in marketplace is listed by an independent seller.

One way Amazon has gotten around this is to invest in joint ventures with local businesses; another is to send employees into local markets with ample supplies of chai to introduce merchants to such concepts as email, apps, and e-commerce and persuade them to list their products on Amazon.

The company basically had to help teach all of India how to buy and sell online. That meant advertising loudly on television and billboards. (‘Aur Dikhao,’ or ‘show me more,’ was the slogan of a TV campaign.)

It also meant finding and enlisting intermediaries, instead of doing away with them (Amazon’s customary approach in other parts of the world).

In one initiative, Amazon turned 14,000 local shipping offices intoe-commerce training centres, called Easy Stores, where counsellors are available to escort buyers through the virtual mall.

Orders are delivered to the stores a day or two later, and buyers can pay cash when they pick them up.

At an air-conditioned Easy Store in the Worli neighbourhood of Mumbai, customers leave their shoes at the door and line up to shop with the help of one of four agents sitting behind counters.

“A sari for my mother, a lehenga skirt for my sister, sheets and blankets for the house,” says Hachnul Haque, a 28-year-old migrant from northeast India, who works in arestaurant kitchen for 25,000 rupeesa month and is buying gifts for hisannual journey home.

Today, he’s looking for a bangle for his aunt. The agent browses Amazon.in on a PC, which is also mirrored on a screen in front of Haque, as Haque takes photos of products with his phone and texts them over WhatsApp to his aunt, so she can pick the one she likes best.

“I’ve known the people here over a year and trust them,” he says, propping a leg up on a free chair. “There’s no tension in shopping this way.”

A 45-minute drive from Amazon’s inconspicuous offices, through the gnarly Bengaluru traffic, are the headquarters of Flipkart, a trio of low-slung towers in an office park that’s also home to the local branches

of Xiaomi and WeWork. Even on a recent national holiday, it’s a hotbed of activity, with employees preparing for ‘Big Billion Days,’ an invented celebration, like Alibaba’s Singles Day and Amazon’s Prime Day.

Big Billion Days kicks off Diwali, the Hindu festival of lights. “Congratulations, Flipkart, we have set a new world record,” reads a giant sign in the lobby (it stacked 45 mattresses to demonstrate the durability of a Flipkart-branded bed frame).

Ask an executive at either Amazon or Flipkart which ones ahead, and you’ll receive an indignant cavalcade of conflicting market-share data. Both profess not to care about the competition while insisting that they’re winning.

What’s safe to say, though, is that Flipkart was the first to bring modern e-commerce to India and is still slightly bigger, and that Bezos recognised that fact and, at one point, was determined to buy it.

Flipkart was founded by two former Amazonians. When Amazon first opened an engineering centre in Bengaluru, in 2006, in a small office over a car dealership, one of the first employees was Sachin Bansal, a graduate of Delhi’s prestigious Indian Institute of Technology.

Jeff Bozos of Amazon.
Jeff Bozos of Amazon.

A year later, Bansal brought his high school friend Binny Bansal (no relation) into Amazon, and a few months later, they quit to try to replicate Bezos’ original magic of selling books in their native country.

Even before they were competing against their former employer, the two had trouble escaping its shadow.

You are just copycats! How is this anything different from Amazon?

Amar Nagaram recalls saying to Sachin Bansal, in 2011 — duringNagaram’s job interview at Flipkart.

Amazingly, Nagaram got the job and is now a vice-president there.

Early on, Flipkart accepted cash payments from customers and began training Indian merchants in the particulars of e-commerce. To help deliver packages in Mumbai, it enlisted the dabbawallas, couriers who make up a century-old network that brings hot lunches in intricately colour-coded boxes from workers’ homes to their offices.

Meanwhile, the company raised billions from investors such as Tiger Global Management, the SouthAfrican investment fund Naspers, and the Silicon Valley venture capital firm Accel. By the end of 2015, Flipkart was worth €15.5bn and one of the most valuable startups in the world.

In 2016, trouble hit. As Bezos continued to write large checks to Amazon India, Flipkart sales slowed, and the company had to lay off workers.

It accepted a lower valuation of €11.6bn, when it raised an additional €1.4bn in April, 2017, from a consortium that included Tencent, eBay, and Microsoft.

And because Flipkart was now-majority-owned by foreign funds, it could no longer sell products directly and had to adopt the marketplace model, where independent merchants list their products and make the sales.

Like Amazon, Flipkart invested in affiliates to carry the most popular inventory. But the shift, executives say, sowed internal chaos and hurt the experience for both buyers and sellers.

By the end of 2017, business was improving. Flipkart’s acquisition of Myntra, a successful fashion website that carries global brands and ethnic Indian clothes, created another popular category on the site, alongside smartphones.

Sachin and Binny Bansal had also recruited back their former chief financial officer, an intense, fast-talking Tiger Global alum named Kalyan Krishnamurthy, who’d worked at eBay in Asia a decade before and had learned, from its fatal lack of interest in tailoring, its service to specific regions in India.

“This is a place where you cannot have one strategy,” says Krishnamurthy, who became Flipkart’s CEO.

You need to have 24 strategies and maybe even more.

Then, the suitors came calling. For the first six months of 2018, the Indian media intensely charted rumoured talks between Flipkart and Walmart.

What was unknown at the time is that Flipkart executives had also started talking to Bezos, according to two people familiar with the negotiations, and even visited the Amazon CEO at his Seattle home.

With Peter Krawiec, his top M&A deputy, Bezos started working on a deal to acquire Flipkart. Members of Walmart’s management team got wind of it when they happened to be in India, taking a private Harvard Business School executive education course about the country.

Intoxicated with the potential of the Indian e-commerce market, the two retail titans battled for the deal through last winter and spring, bidding up Flipkart’s valuation from €11.6bn to €20bn.

Amazon eventually offered the higher bid, says someone who was privy to the negotiations, and at least one major Flipkart backer, SoftBank’s Masayoshi Son, favoured it.

But while Bezos was confident he could get the deal approved by Indian regulators, some of Flipkart’s investors feared the uncertainty of the competition approval process.

Eager to cash out of a decade-old startup, Flipkart’s board agreed to sell to Walmart. Walmart CEO, Doug McMillon, visited India after the acquisition was announced and told Flipkart employees, “It is our intention to just empower you and let you run. Speed matters. Decisiveness matters.”

At 12 noon on a Saturday, SP Road, Bengaluru’s wholesale electronics market, feels desolate. In the tiny, mostly empty stores that pack the street, shop attendants arrange and rearrange their goods.

As sales of smartphones and computers have skyrocketed on Amazon and Flipkart, they’ve cratered here.

Caught in the downdraft is Jagdish Raj Purohit, the owner of a store that bills itself as Sunrise Telecom. It’s a shoebox of a space, and Purohit is seated behind the cash register at the entrance.

Along one side are hundreds of cases for every conceivable smartphone model. On the other is a combination of low-end and mid-price phones, as well as a Vivo V11, anupscale model from China that sells for 26,000 rupees (€3,100).

Purohit doesn’t expect to sell many. “All mobile sales have gone online,” he grouses, when asked the customary Hindi question, “Dhanda kaisa hai?” (“How’s business?”).

Flipkart and Amazon are always advertising discounts on such phones, so who will come here?

He tries to make up the shortfall by selling accessories.

At Raj Shree Computech, down the street, Mahendra Kumar and his two brothers have been selling computers and accessories for a dozen years. For the last few, business has been “thoda thanda” (a bit cold). It’s not a great mystery why.

“Whoever comes here quotes laptop prices from Flipkart and Amazon straightaway, even before we say anything,” says Kumar.

Or “they’ll come here and try many headphones for sound and then walk out, saying they’ll be back later. We know they aren’t coming back.”

Like his fellow shop owner down the street, Kumar is reluctant to become a seller on Amazon or Flipkart, because margins are slim and returns create headaches.

Amazon warehouse.
Amazon warehouse.

While e-commerce is churning up SP Road, its impact is less obvious at KR Market, a cacophonous outdoor bazaar about a 10-minute rickshaw ride away.

Sari-clad women hawk mounds of eggplant and beetroot, workers carry gunny sacks of sweet lime, orange, and jasmine from trucks, vendors scream out prices, and buyers haggle as they fill bags with produce.

Here is Indian retail in all its chaotic originality, untouched, for now, by the internet and the industrialists looking to build their empires on top of it. Ramesh Kumar, who for 30 years has sold mountains of blood-red pomegranates, has never even heard of Amazon.

“Where is Amazon market?” he asks, furrowing his brow. “Are they opening near here?”

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