Amazon’s food retail business stop selling post-February 1 due to new marketplace regulations

Jan 16, 2019

Amazon Retail India Pvt Ltd (ARIPL), which is a seller of foodstuff on Amazon.in, will stop selling post-February 1 in a bid to comply with the new marketplace regulations. This step will be taken if the government’s latest foreign direct investment (FDI) guidelines remain unchanged by next month.
This development follows the latest notification on ecommerce FDI, which prohibits marketplaces from selling affiliates’ products. It goes into effect on February 1.

This would be a blow for the initiative as Amazon was the only foreign retailer to have committed investment — to the tune of $500 million — in the food retail segment after it opened up in mid-2016. In addition, Amazon’s planned acquisition of a stake in Future Retail may be delayed.

The company remains committed to invest in India in a way that can work with the government’s vision towards the farmer and agricultural community but at present, they are still evaluating the Press Note 2 guidelines.

Indian government tightened norms for FDI-funded ecommerce companies including Flipkart and Amazon in December and said such entities cannot exercise ownership or control over inventory. They must provide services such as warehousing, logistics and advertising to all sellers in a fair manner. It also disallowed ecommerce companies from entering into pacts for the exclusive sale of products and from holding equity stakes in their sellers. Hence the new norms prevent a foreign marketplace company from holding any stake in a seller on its platform; it is unlikely that the transaction can now go ahead.

These new norms have also cast their shadow over Amazon’s proposed stake acquisition in Kishore Biyani’s Future Retail. The US online retailer was in talks to pick 9.5% stake in Future Retail and the deal was supposed to be announced last year.

Amazon was in discussions to acquire a stake in India’s largest listed retailer through the foreign portfolio investor (FPI) route, similar to its earlier deal two years ago when it acquired a 5% stake in Shoppers Stop for about Rs 180 crore. An individual FPI can hold up to 10% in an Indian entity though multiple FPIs can hold up to 49% stake.
Amazon had also acquired a stake in more supermarkets from Aditya Birla Retail through Witzig Advisory Services along with co-investor Samara Capital a quarter ago. Just last week, the Competition Commission of India sought details from Samara Capital on the role of Amazon and how the proposed deal is in line with the government’s revised FDI ecommerce policy.

The latest changes will mean ARIPL can’t sell on the Amazon marketplace starting February 1. FDI-funded platforms can’t sell products from any entities with which they have equity relationships when the changes go into effect.

Leave a Reply

Your email address will not be published. Required fields are marked *