India’s Supreme Court handed Amazon a lifeline Monday [Feb. 21] in what may be Amazon’s last stand in a fight for India’s vast retail market. The stakes could hardly be higher in a billionaire stand-off between Amazon boss Jeff Bezos and India’s richest man, Mukesh Ambani.
The winner-takes-all legal battle will likely determine who holds the cards in a three-way struggle between Reliance - India’s largest retailer - Amazon and Flipkart owner Walmart, to reach Indian consumers, who in terms of potential riches are behind only the Chinese and U.S. retail markets.
Amazon faces a race against time to stop Ambani from buying up local rival Future’s 1,500 fashion and grocery stores in a $3.4 billion deal and turbo-charging his expanding JioMart venture, which delivers daily essentials via a vast network of mom-and-pop shops, reshaping e-commerce in India for years to come.
Local hero Reliance has home-field advantage, while Ambani also has previous as a disrupter. Reliance has businesses in power, oil, retail, and telecoms and runs outlets for global brands, including Hugo Boss and Burberry. And in 2019 Reliance bought U.K. toy shop retailer Hamleys.
Put simply, Amazon has never traded blows with this kind of rival in any other market.
On Monday the courts bought Amazon time, as they barred Reliance Industries from acquiring the ailing Future Group, which late last year missed a bond payment, tanking its credit rating. The deal has already been signed off by regulators, pending inking by the National Company Law Tribunal (NCLT) and ascent by Future’s shareholders.
Amazon Cries Foul, Wins Temporary Reprieve
Future, in deep distress after India’s coronavirus lockdown, has argued that it will collapse if the deal fails, endangering 25,000 jobs across FMCG arm Future Consumer and retail infrastructure firm Future Enterprises. Indian courts will likely favor an outcome that keeps the company alive to save those jobs.
However, Amazon has alleged that the sale breaches a contract it has with Future subsidiary, Future Coupons — which markets and distributes gift and loyalty cards — that bars Future from selling its retail assets without Amazon’s consent. In October, an arbitration panel in Singapore decreed the deal should be iced pending a final verdict, and Amazon appealed to India’s Supreme Court.
The Supreme Court has now concurred that the NCLT should park the deal until it has heard the case, scheduled March. But Amazon fears that if Future’s shareholders pass the acquisition, any legal action will be null and void. Reliance’s retail arm raised more than $6 billion from investors after announcing its desire to buy Future Group, with backers including Silver Lake and KKR, for just over 10% of the company. And if Reliance’s purchase goes ahead, it would give its retail arm access to over 1,800 stores in more than 420 Indian cities, including Big Bazaar and gourmet food brand Foodhall, plus Future Group’s wholesale and logistics businesses.
Significantly, that would bolster JioMart as a major competitor to Amazon, which currently has just under a third of India’s booming e-commerce market. JioMart already taps into Reliance’s 400 million-user Jio cell phone network and has partnered with WhatsApp for payments.
Indian Grocery Market The Big Prize
Grocery is the big prize because it accounts for about half of all consumer spending and the pandemic has accelerated the shift towards e-commerce, in part because India has had one of the strictest lockdowns.
In addition to Amazon, which acquired a 49% stake in unlisted Future Coupons in 2019, and holds minority investments in supermarket chain More and department store chain Shoppers Stop, Walmart has partnered with Indian e-commerce brand Flipkart and Facebook paid $5.7 billion for a 9.9% stake in Jio Platforms, owned by Reliance Industries.
Amazon has tried to frame the case as the latest example of the unfair playing field foreign investors face in India, following successful appeals by Vodafone and Cairn Energy over long-running legal disputes with Prime Minister Narendra Modi’s government over retrospective taxes.
India’s regulations currently restrict foreign companies from running online multi-brand retail stores and legal experts have implied that Amazon may have invested in Future Coupons simply as a workaround for FDI rules. They say Amazon was already sailing close to the wind.
Just how close, Amazon will discover soon as Reliance, like Alibaba, attempts to stop the retailer’s march across Western markets being replicated in the East.