Amazon’s experiment with Kirana stores has failed! || THE A TEAM ||

Amazon’s experiment with Kirana stores has failed! || THE A TEAM ||
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IDEA ~ AADITYA
PRODUCER ~ AKSHIT SAROHA
SPECIAL THANX ~ANURAG VAIDHWAN

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Amazon spent $227 million to build a B2B e-commerce platform in India.

What does that mean?

Well, India runs on Kirana stores — millions peppered across the country. That’s where most people buy their groceries. But manufacturers don’t just supply these stores themselves. Instead, you have an elaborate network of distributors who push the product from FMCG companies to the Kirana stores. And Amazon wanted to disrupt this delicate equation. Remove the middlemen entirely and link the manufacturer to the last-mile stores — like Udaan and JioMart.

So they embarked on an experiment. They set up warehouses in Karnataka — Bengaluru, Mysuru, and Hubballi. And began operations.

Until this week…

Amazon finally brought the curtain down on its experimental B2B e-commerce venture. It was bleeding money with no sign of profitability in sight. $227 million flushed down the drain and they couldn’t succeed.

Why?

Well, Amazon hasn’t told us why just yet. But maybe looking at the B2B e-commerce ecosystem could shed some light.

For starters, distributors are extremely resilient

Remember our story about the tiff between Parle-G and Udaan?

Udaan wanted to buy Parle-G biscuits from Parle directly. They hoped to make the biscuits available to kirana stores at a competitive price. But Parle refused. They wanted Udaan to buy the biscuits from the distributors instead.

Parle’s arguement was this. The likes of Udaan have been posing a massive threat to the distributor network they so painstakingly built. And they believed the company would decimate their competition and drive most distributors out of business. If this happened, Parle would eventually be at the mercy of Udaan. And it’s not a position that they wanted to find themselves in.

So even if the likes of Amazon offered a better price to manufacturers, the long-term implications of depending on them can be disastrous. And FMCG companies are aware of this existential risk.

Which is why the likes of HUL, ITC, and Marico — top FMCG companies still distribute nearly 90% of their products through traditional distribution networks.

It’s also about competing with FMCG ‘brands’ that have clout.

Take the example of Hindustan Unilever, an FMCG behemoth that’s been around for a long long time. Do you think they need Amazon’s help in selling Surf Excel? Not really. People in the country know the brand. And they demand it. It is a ₹5,000 crore brand and drives over 10% of HUL’s revenues.

But HUL’s fast-moving products are usually 500g and 1kg variants. That’s what HUL hands over to distributors who ship it to the kirana stores where it’ll fly off the shelves.