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Amazon Likely to Acquire “More” to Thwart Competition from Walmart in India

If things go as planned, Aditya Birla Group’s retail store chain, ‘More’ is likely to witness a change in the ownership structure in the days to come. Amazon along with Goldman Sachs and Samara Capital will form an independent company to acquire the loss-making food and grocery supermarket chain belonging to the Aditya Birla conglomerate. 

Samara Capital is a private equity firm focused on investing in emerging and mid-market Indian companies. An ‘exclusivity’ agreement had been reached between Aditya Birla Retail Ltd and Samara Capital for bilateral negotiations in the days nearing the end of June. Thereon, Samara Capital bought Amazon and Goldman Sachs into the picture. As for Goldman Sachs, it will be its Special Situations Group that will be the stakeholder in this forthcoming deal. The valuation of ‘More’ is slated to be in the region of Rs 4,500-5000 crore. The consortium of three companies will establish an independent company in which Amazon will hold a 49% stake and function as its ‘strategic partner’. 

An official announcement is expected to be made around the last week of this month or the first week of the next month after final touches to the structuring exercise are dealt with. 

If the deal happens, then this will follow the 5% stake, amounting to Rs 180 crore made by Amazon in ‘Shopper’s Stop’, one of the biggest department store chain listed on the Indian stock exchange. Amazon’s unexpected acquisition of ‘Whole Foods’ for a whopping $13.7 billion in the initial months of this year had taken the US grocery segment by storm. 

The changes in the food and grocery sector are taking place as a means to tackle the reducing retail margins and have become a feature of the omnichannel strategy followed by most of the players in the market.  

Foreign investment in retailers offering multi-brands cannot exceed 49% under the Indian overseas investment laws. This obstacle is, however, surmounted by foreign companies by establishing holding companies in cash-and-carry retail trading in which full overseas ownership is permitted.  Indian owned entities operate the front-end outlets as franchisees.

Samara had adopted this route in 2008 during its acquisition of controlling stake in Guardian Nutrition, the pharmaceutical retailer which had Ashutosh Garg at its helm.

Another example in this context is that of Partners Group, the Swiss-based private equity company who had partnered with Kedaara Capital, a local fund company to acquire Vishal Retail from Shriram Group and TPG for an amount of Rs 5,000 crore in the month of May.

Food Retail Scenario

All said and done, Amazon stands to gain a lot from the deal from the point of strengthening its presence in the food and grocery segment. This becomes all the more important after the acquisition of Flipkart by its competitor, Walmart for an amount of $16 billion and after Amazon’s efforts in establishing an independent offline and online outlet to market foodstuff manufactured and packed locally did not materialize as planned. A Rs 100 crore investment was also made by the e-commerce giant into that business (Amazon Retail India Pvt., the business in question).   

The sales turnover of ABRL amounted to Rs 4,194 crore, a 20% rise in the FY17 and the net loss figure decreased to Rs 644 crore. Though the company’s annual book debts stood at Rs 6,573 crore and financing costs of Rs 471 crore it had substantially scaled down it’s working to achieve a breakeven store-level EBITDA.

The changing of the store strategy of strengthening its existing base instead of widening it paid off. The focus is on markets like Bengaluru, Hyderabad, Pune, Kolkata, Chennai and the region of the National Capital as these are situated in proximity to the distribution centers. 

As far as ABRL’s supermarkets and hypermarkets go, the number of hypermarkets totaled 20 and that of More supermarkets totaled 493 taking the total area of retail space to 2m sq ft plus. The supermarket chain ranks fourth in terms of a number of outlets following DMart, Reliance Retail, and Future Group.  The concentration of ‘More’ outlets is greater in the southern part of the country with its organized retail market share also being more in that region. 

A spurt in Omnichannel Segment 

The digital economy of the country is expected to exceed $1 trillion around 2025 and the fact is already influencing a lot of retail giants around the globe. After Walmart made its historic acquisition of Flipkart for a cool $16 billion, Amazon hiked its investment in its Indian entity by an extra Rs 2,700 crore taking the total investment to $4 billion in a timespan of five years, $1 billion short of its original commitment of $5 billion.  

Alibaba is also exploring the opportunity to team up with local business giants such as Tata and Reliance for expanding its retail business. Alibaba has made huge investments in the payments and retail segment via Paytm and BigBasket.

Mukesh Ambani’s Reliance has plans in the offing to create a new e-commerce platform which will be a fusion of the ‘online-to-offline’ mode merging the shopping experience with Reliance Jio.

Birla also separated its Lifestyle division and apparel manufacturing unit, Madura fashion from Aditya Birla Nuvo and combined it with Pantaloon Fashion and Retail Ltd, a listed company, some years ago. The merger became one of the country’s biggest branded attire companies in terms of volume and store outlets.

The Birla group came into the grocery and retail segment about ten years ago through the acquisition of a small player named Trinethra Retail. Efforts by More to raise funds through private equity on previous occasions had not met with any success. Cashing out seemed the best solution to the Birla conglomerate to tackle the liquidity problems faced by the group. 

However, no comments were available on the new ‘More’ deal from any of the parties involved.

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